On Fragility of Bubbles in Equilibrium Asset Pricing Models of Lucas-Type
In this paper we study the existence of bubbles for pricing equilibria in a pure exchange economy à la Lucas, with infinitely lived homogeneous agents. The model is analyzed under fairly general assumptions: no restrictions either on the stochastic process governing dividends distribution or on the utilities (possibly unbounded) are required. We prove that the pricing equilibrium is unique as long as the agents exhibit uniformly bounded relative risk aversion. A generic uniqueness result is also given regardless of agent’s preferences. A few ”pathological” examples of economies exhibiting pricing equilibria with bubble components are constructed. Finally, a possible relationship between our approach and the theory developed by Santos and Woodford on ambiguous bubbles is investigated. The whole discussion sheds more insight on the common belief that bubbles are a marginal phenomenon in such models.
|Date of creation:||Jan 2001|
|Contact details of provider:|| Postal: Corso Unione Sovietica, 218bis - 10134 Torino - Italy|
Phone: +39 011 6706060
Fax: +39 011 6706062
Web page: http://www.esomas.unito.it/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Zilcha, Itzhak, 1976. "Characterization by prices of optimal programs under uncertainty," Journal of Mathematical Economics, Elsevier, vol. 3(2), pages 173-183, July.
- Montrucchio, Luigi & Privileggi, Fabio, 2001.
"On Fragility of Bubbles in Equilibrium Asset Pricing Models of Lucas-Type,"
Journal of Economic Theory,
Elsevier, vol. 101(1), pages 158-188, November.
- Montrucchio, Luigi & Privileggi, Fabio, 1999. "On Fragility of Bubbles in Equilibrium Asset Pricing Models of Lucas-Type," POLIS Working Papers 5, Institute of Public Policy and Public Choice - POLIS.
- Luigi Montrucchio & Fabio Privileggi, 2001. "On Fragility of Bubbles in Equilibrium Asset Pricing Models of Lucas-Type," ICER Working Papers - Applied Mathematics Series 05-2001, ICER - International Centre for Economic Research.
- Manuel S. Santos & Michael Woodford, 1997. "Rational Asset Pricing Bubbles," Econometrica, Econometric Society, vol. 65(1), pages 19-58, January.
- Manuel S. Santos & Michael Woodford, 1993. "Rational Asset Pricing Bubbles," Working Papers 9304, Centro de Investigacion Economica, ITAM.
- Woodford, Michael & Santos, Manuel S., 1995. "Rational asset pricing bubbles," UC3M Working papers. Economics 3913, Universidad Carlos III de Madrid. Departamento de Economía.
- Cass, David, 1972. "On capital overaccumulation in the aggregative, neoclassical model of economic growth: A complete characterization," Journal of Economic Theory, Elsevier, vol. 4(2), pages 200-223, April.
- Shell, Karl, 1971. "Notes on the Economics of Infinity," Journal of Political Economy, University of Chicago Press, vol. 79(5), pages 1002-1011, Sept.-Oct.
- Kocherlakota, Narayana R., 1992. "Bubbles and constraints on debt accumulation," Journal of Economic Theory, Elsevier, vol. 57(1), pages 245-256.
- Kocherlakota, N.R., 1990. "Bubbles and Constraints on Debt Accumulation," Working Papers 90-29, University of Iowa, Department of Economics.
- William A. Brock, 1982. "Asset Prices in a Production Economy," NBER Chapters,in: The Economics of Information and Uncertainty, pages 1-46 National Bureau of Economic Research, Inc.
- Brock, William A., 1980. "Asset Prices in a Production Economy," Working Papers 275, California Institute of Technology, Division of the Humanities and Social Sciences.
- Wilson, Charles A., 1981. "Equilibrium in dynamic models with an infinity of agents," Journal of Economic Theory, Elsevier, vol. 24(1), pages 95-111, February.
- Magill, Michael & Quinzii, Martine, 1996. "Incomplete markets over an infinite horizon: Long-lived securities and speculative bubbles," Journal of Mathematical Economics, Elsevier, vol. 26(1), pages 133-170.
- Magill, M. & Quinzii, M., 1993. "Icomplete Markets Over an Infinite Horizon: Long-Lived Securities and Speculative Bubbles," Papers 9321, Southern California - Department of Economics.
- Kandori, Michihiro, 1988. "Equivalent Equilibria," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(3), pages 401-417, August.
- W. A. Brock, 1970. "On Existence of Weakly Maximal Programmes in a Multi-Sector Economy," Review of Economic Studies, Oxford University Press, vol. 37(2), pages 275-280.
- Kamihigashi, Takashi, 2001. "Necessity of Transversality Conditions for Infinite Horizon Problems," Econometrica, Econometric Society, vol. 69(4), pages 995-1012, July.
- Tirole, Jean, 1982. "On the Possibility of Speculation under Rational Expectations," Econometrica, Econometric Society, vol. 50(5), pages 1163-1181, September.
- Kevin X.D. Huang & Jan Werner, 1997. "Valuation bubbles and sequential bubbles," Economics Working Papers 303, Department of Economics and Business, Universitat Pompeu Fabra, revised Dec 1997.
- Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
- Epstein, Larry G & Wang, Tan, 1994. "Intertemporal Asset Pricing Under Knightian Uncertainty," Econometrica, Econometric Society, vol. 62(2), pages 283-322, March.
- Takekuma, Shin-Ichi, 1992. "Optimal Growth under Uncertainty: A Complete Characterization of Weakly Maximal Programs," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 33(2), pages 169-182, December.
- Gilles, Christian & LeRoy, Stephen F, 1992. "Bubbles and Charges," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(2), pages 323-339, May.
- C. Gilles & S.F. Leroy, 1989. "Bublles and Charges," Carleton Economic Papers 89-05, Carleton University, Department of Economics, revised May 1992.
- Takashi Kamihigashi, 1998. "Uniqueness of asset prices in an exchange economy with unbounded utility," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 12(1), pages 103-122. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:icr:wpmath:05-2001. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Simone Pellegrino)
If references are entirely missing, you can add them using this form.