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Efficient Intertemporal Allocations with Recursive Utility

Author

Listed:
  • Bernard Dumas

    (HEC Paris - Recherche - Hors Laboratoire - HEC Paris - Ecole des Hautes Etudes Commerciales)

  • Raman Uppal
  • Tan Wang

Abstract

In this article, our objective is to determine efficient allocations in economies with multiple agents having recursive utility functions. Our main result is to show that in a multiagent economy, the problem of determining efficient allocations can be characterized in terms of a single value function (that of a social planner), rather than multiple functions (one for each investor), as has been proposed thus far (Duffie, Geoffard and Skiadas (1994)). We then show how the single value function can be identified using the familiar technique of stochastic dynamic programming. We achieve these goals by first extending to a stochastic environment Geoffard's (1996) concept of variational utility and his result that variational utility is equivalent to recursive utility, and then using these results to characterize allocations in a multiagent setting.
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Suggested Citation

  • Bernard Dumas & Raman Uppal & Tan Wang, 1997. "Efficient Intertemporal Allocations with Recursive Utility," Working Papers hal-00605603, HAL.
    • Handle: RePEc:hal:wpaper:hal-00605603
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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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