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Abstract

This paper introduces a new class of utility functions---the power risk aversion. It is shown that the CRRA and CARA utility functions are both in this class. The implications of the PRA utility functions are explored in the context of growth theory. In particular, it is found that economies facing a common real interest rate do not necessarily grow at the same rates if they start with different levels of capital stock. Thus diversity in growth performance across countries occurs even if these countries have access to perfect international capital markets. Potential applications of the PRA in asset pricing are considered.

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Bibliographic Info

Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 22.

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Length: 18 pages
Date of creation: Nov 1999
Date of revision: Oct 2000
Publication status: Published in Annals of Economics and Finance, Nov 2000, pages 265-282
Handle: RePEc:cuf:wpaper:22

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Web page: http://cema.cufe.edu.cn/
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Related research

Keywords: PRA utility functions; Growth; Asset pricing;

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Find related papers by JEL classification:

• O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
• E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
• C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General

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Cited by:

1. Smith, William T. & Zhang, Qiang, 2007. "Asset pricing with multiplicative habit and power-expo preferences," Economics Letters, Elsevier, vol. 94(3), pages 319-325, March.
   
   • William T. Smith & Qiang Zhang, 2006. "Asset Pricing With Multiplicative Habit and Power-Expo Preferences," CIRJE F-Series CIRJE-F-429, CIRJE, Faculty of Economics, University of Tokyo.
2. Denis Conniffe, 2007. "The Flexible Three Parameter Utility Function," Annals of Economics and Finance, Society for AEF, vol. 8(1), pages 57-63, May.
3. Denis Conniffe, 2007. "Generalised Means of Simple Utility Functions with Risk Aversion," Economics, Finance and Accounting Department Working Paper Series n1790907.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
   
   • Conniffe, Denis, 2008. "Generalised Means of Simple Utility Functions with Risk Aversion," The Economic and Social Review, Economic and Social Studies, vol. 39(1), pages 1-12.
4. Bahaji, Hamza, 2012. "De l’évaluation des stock options en « juste valeur » : apport de l’approche comportementale," Open Access publications from Université Paris-Dauphine urn:hdl:123456789/10710, Université Paris-Dauphine.

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