Dynamic Aggregation and Computation of Equilibria in Finite-Dimensional Economies with Incomplete Financial Markets
AbstractThis paper constructs a representative agent supporting the equilibrium allocation in event-tree economies with time-additive preferences and possibly incomplete securities markets. If the equilibrium allocation is Pareto optimal, this construction gives the usual linear welfare function. Otherwise, the representative agent's utility function is state-dependent, even when individual agents have state-independent utilities and homogeneous beliefs. The existence of a representative agent allows us to provide a characterization of equilibria which does not rely on the derivation of the agents' intertemporal demand functions for consumption and investment. More specifically, it allows us to transform the dynamic general equilibrium problem into a static one, and is therefore especially well suited for numerical computation of equilibria in economies with incomplete financial markets.
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Bibliographic InfoPaper provided by University of California at Berkeley in its series Research Program in Finance Working Papers with number RPF-236.
Date of creation: 01 Jun 1994
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- Leonid Kogan & Raman Uppal, .
"Risk Aversion and Optimal Portfolio Policies in Partial and General Equilibrium Economies,"
Rodney L. White Center for Financial Research Working Papers
13-00, Wharton School Rodney L. White Center for Financial Research.
- Leonid Kogan & Raman Uppal, 2001. "Risk Aversion and Optimal Portfolio Policies in Partial and General Equilibrium Economies," NBER Working Papers 8609, National Bureau of Economic Research, Inc.
- Kogan, Leonid & Uppal, Raman, 2002. "Risk Aversion and Optimal Portfolio Policies in Partial and General Equilibrium Economies," CEPR Discussion Papers 3306, C.E.P.R. Discussion Papers.
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