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Power Risk Aversion Utility Functions

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Author Info
Danyang Xie (International Monetary Fund)

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Abstract

This paper introduces a new class of utility function -- 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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File URL: http://129.3.20.41/eps/if/papers/0207/0207006.pdf
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Publisher Info
Paper provided by EconWPA in its series International Finance with number 0207006.

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Length: 18 pages
Date of creation: 22 Aug 2002
Date of revision:
Handle: RePEc:wpa:wuwpif:0207006

Note: Type of Document - Acrobat PDF; prepared on PC; to print on HP/PostScript/Franciscan monk; pages: 18; figures: Included
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Web page: http://129.3.20.41

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Related research
Keywords: Power Risk Aversion; Growth; Asset Pricing;

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 and Programming - - - General

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Cited by:
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  1. 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. [Downloadable!]
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This page was last updated on 2009-11-13.

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