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Heterogeneous Impatience in a Continuous-Time Model

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  • Hara, Chiaki

Abstract

In a continuous-time economy with complete markets, we show how the heterogeneity in the individual consumers' risk attitudes and impatience would affect the representative consumer's counterparts. Specifically, our formulas tell us how his risk tolerance and impatience will change over time, and how his impatience will be affected by the changes in aggregate consumption levels. Under the assumption of equal and constant relative risk aversion across individual consumers, we characterize his discount factor by means of a completely monotone function of time. These results are used to analyze short-rate processes.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/15916/1/pie_dp396.pdf
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Bibliographic Info

Paper provided by Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University in its series PIE/CIS Discussion Paper with number 396.

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Length: 14 p.
Date of creation: Aug 2008
Date of revision:
Handle: RePEc:hit:piecis:396

Note: October 25, 2007
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Related research

Keywords: Representative consumer; expected utility; time additivity; multiplicative separability; impatience; risk tolerance; state-price deflator; short-rate process; complete monotonicity;

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References

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  1. Chiaki Hara, 2005. "Heterogeneous Risk Attitudes in a Continuous-Time Model," KIER Working Papers 609, Kyoto University, Institute of Economic Research.
  2. Martin Lettau & Sydney C. Ludvigson & Jessica A. Wachter, 2004. "The Declining Equity Premium: What Role Does Macroeconomic Risk Play?," NBER Working Papers 10270, National Bureau of Economic Research, Inc.
  3. Ravi Jagannathan & Ellen R. McGrattan & Anna Scherbina., 2000. "The declining U.S. equity premium," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 3-19.
  4. Chiaki Hara, 2007. "Complete Monotonicity of the Representative Consumer's Discount Factor," KIER Working Papers 636, Kyoto University, Institute of Economic Research.
  5. Christian Gollier & Richard Zeckhauser, 2005. "Aggregation of Heterogeneous Time Preferences," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 878-896, August.
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Cited by:
  1. Geoffrey Heal & Antony Millner, 2013. "Discounting under Disagreement," NBER Working Papers 18999, National Bureau of Economic Research, Inc.
  2. Hara, Chiaki, 2008. "Complete Monotonicity of the Representative Consumer's Discount Factor," PIE/CIS Discussion Paper 367, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.

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