In this paper we study the existence of bubbles for pricing equilibria in a pure exchange economy à la Lucas, with infinitely lived homogeneous agents. The model is analyzed under fairly general assumptions: no restrictions either on the stochastic process governing dividends’ distribution or on the utilities (possibly unbounded) are required. We prove that the pricing equilibrium is unique as long as the agents exhibit uniformly bounded relative risk aversion. A generic uniqueness result is also given regardless of agent’s preferences. A few ”pathological” examples of economies exhibiting pricing equilibria with bubble components are constructed. Finally, a possible relationship between our approach and the theory developed by Santos and Woodford on ambiguous bubbles is investigated. The whole discussion sheds more insight on the common belief that bubbles are a marginal phenomenon in such models.
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Length: 32 pages Date of creation: Jan 2001 Date of revision: Handle: RePEc:icr:wpmath:05-2001
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Find related papers by JEL classification: C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Kandori, Michihiro, 1988.
"Equivalent Equilibria,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(3), pages 401-17, August.
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Gilles, Christian & LeRoy, Stephen F, 1992.
"Bubbles and Charges,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(2), pages 323-39, May.
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Brock, William A., 1980.
"Asset Prices in a Production Economy,"
Working Papers
275, California Institute of Technology, Division of the Humanities and Social Sciences.
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Other versions:
William A. Brock, 1982.
"Asset Prices in a Production Economy,"
NBER Chapters,
in: The Economics of Information and Uncertainty, pages 1-46
National Bureau of Economic Research, Inc.
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Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.) This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.