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The Equity Premium In Consumption And Production Models

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  • Akdeniz, Levent
  • Dechert, W. Davis

Abstract

In this paper we use a simple model with a single Cobb–Douglas firm and a consumer with a CRRA utility function to show the difference between the equity premia in the production-based Brock model and the consumption-based Lucas model. With this simple example we show that the equity premium in the production-based model exceeds that of the consumption-based model with probability 1.

Suggested Citation

  • Akdeniz, Levent & Dechert, W. Davis, 2012. "The Equity Premium In Consumption And Production Models," Macroeconomic Dynamics, Cambridge University Press, vol. 16(S1), pages 139-148, April.
  • Handle: RePEc:cup:macdyn:v:16:y:2012:i:s1:p:139-148_00
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