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Power Risk Aversion Utility Functions

  • Danyang Xie

    ()

    (Department of Economics, Hong Kong University of Science and Technology
    International Monetary Fund)

This paper introduces a new class of utility functions---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://down.aefweb.net/WorkingPapers/w22.pdf
File Function: Last version, 2000
Download Restriction: no

Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 22.

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Length: 18 pages
Date of creation: Nov 1999
Date of revision: Oct 2000
Publication status: Published in Annals of Economics and Finance, Nov 2000, pages 265-282
Handle: RePEc:cuf:wpaper:22
Contact details of provider: Web page: http://cema.cufe.edu.cn/

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  1. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October.
  2. R. C. Merton, 1970. "Optimum Consumption and Portfolio Rules in a Continuous-time Model," Working papers 58, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June.
  4. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  5. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May.
  6. Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  7. Gene M. Grossman & Elhanan Helpman, 1989. "Quality Ladders in the Theory of Growth," NBER Working Papers 3099, National Bureau of Economic Research, Inc.
  8. King, R.G. & Rebelo, S.T., 1989. "Transitional Dynamics And Economic Growth In The Neoclassical Model," RCER Working Papers 206, University of Rochester - Center for Economic Research (RCER).
  9. Danyang Xie, 2002. "Divergence in Economic Performance: Transitional Dynamics with Multiple Equilibria," GE, Growth, Math methods 0210002, EconWPA.
  10. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
  11. Jeff Frank, 1990. "Monopolistic Competition, Risk Aversion, and Equilibrium Recessions," The Quarterly Journal of Economics, Oxford University Press, vol. 105(4), pages 921-938.
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