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Asset Valuation and Production Efficiency in an Overlapping-Generations Model with Production Shocks

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  • W. Davis Dechert
  • Kenji Yamamoto

Abstract

This paper extends the Cass criterion for production efficiency to include uncertainty and uses it to show that a stock market equilibrium in an overlapping-generations model with production uncertainty is efficient. It also develops a no-bubbles asset-pricing formula. Results are compared with Brock's (1982) infinite-lived consumer model and it is shown that the stock market equilibrium in the overlapping-generations model has precisely the same asset valuation as Brock's infinitely-lived agent model.

Suggested Citation

  • W. Davis Dechert & Kenji Yamamoto, 1992. "Asset Valuation and Production Efficiency in an Overlapping-Generations Model with Production Shocks," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(2), pages 389-405.
    • Handle: RePEc:oup:restud:v:59:y:1992:i:2:p:389-405.
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    File URL: http://hdl.handle.net/10.2307/2297960
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    Cited by:

    1. Barbie, Martin & Hagedorn, Marcus & Kaul, Ashok, 2000. "Dynamic Efficiency and Pareto Optimality in a Stochastic OLG Model with Production and Social Security," IZA Discussion Papers 209, Institute of Labor Economics (IZA).
    2. Femminis, Gianluca, 2002. "Monopolistic competition, dynamic inefficiency and asset bubbles," Journal of Economic Dynamics and Control, Elsevier, vol. 26(6), pages 985-1007, June.
    3. Barbie, Martin & Hagedorn, Marcus & Kaul, Ashok, 2007. "On the interaction between risk sharing and capital accumulation in a stochastic OLG model with production," Journal of Economic Theory, Elsevier, vol. 137(1), pages 568-579, November.
    4. Emmanuel Thibault & Bruno Decreuse, 2001. "Labor productivity and dynamic efficiency," Economics Bulletin, AccessEcon, vol. 4(13), pages 1-6.
    5. Hillebrand, Marten, 2012. "On the optimal size of Social Security in the presence of a stock market," Journal of Mathematical Economics, Elsevier, vol. 48(1), pages 26-38.
    6. Magill, Michael & Quinzii, Martine, 2003. "Nonshiftable capital, affine price expectations and convergence to the Golden Rule," Journal of Mathematical Economics, Elsevier, vol. 39(3-4), pages 239-272, June.
    7. Gianluca FEMMINIS, 2000. "Dynamic inefficiency with a decreasing returns technology for firms," Discussion Papers (REL - Recherches Economiques de Louvain) 2000011, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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