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Heterogeneous Impatience in a Continuous-Time Model

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Author Info
Hara, Chiaki
Abstract

In a continuous-time economy with complete markets, we study how the heterogeneity in the individual consumers' risk tolerance and impatience affects the representative consumer's risk tolerance and impatience. We derive some formulas, which indicate that the representative consumer's impatience decrease over time, and whether his risk tolerance increases or decreases over time depends on the sign of some weighted covariance between the individual consumers' cautiousness (derivative of risk tolerance with respect to own consumptions) and impatience. These results are then used to show that the short rate tends to decrease over time and the market price of risk is volatile in some special cases of heterogeneous economies.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/17298/1/pie_dp425.pdf
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Publisher Info
Paper provided by Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University in its series PIE/CIS Discussion Paper with number 425.

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Length: 21 p.
Date of creation: Mar 2009
Date of revision:
Handle: RePEc:hit:piecis:425

Note: January 18, 2009
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Web page: http://cis.ier.hit-u.ac.jp/
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Related research
Keywords: Representative consumer; risk tolerance; impatience; state-price deflator; shortrate process; market price of risk;

Find related papers by JEL classification:
D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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This page was last updated on 2009-11-11.

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