Optimality conditions and bubbles in sequential economies and bounded relative risk-aversion

DOI10.1007/S102030300003MaRDI QIDQ1397607zbMATH OpenOpenAlexFDO

Authors Arianna Dal Forno, Luigi Montrucchio

Publication date 6 August 2003

Published in Decisions in Economics and Finance (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1007/s102030300003

zbMATH Keywords

infinite horizon economypricing bubblesstochastic equilibrium

Mathematics Subject Classification ID

Auctions, bargaining, bidding and selling, and other market models (91B26) Consumer behavior, demand theory (91B42)

Review text

The authors consider the infinite horizon economy in the framework adopted by \textit{T. Kamihigashi} [Econ. Theory 12, No.1, 103--122 (1998; Zbl 0909.90072)] and \textit{L.Montrucchio} and \textit{F. Privileggi} [J. Econ. Theory 101, 158--188 (2001; Zbl 1006.91034)]. The individual optimal decisions of an infinitely-lived agent in the light of short-run optimality conditions, known as stochastic Euler equation, as well as of long-run type, which are usually known as transversality conditions, are analyzed. The occurrence of pricing bubbles is investigated. New results generalizing the well-known and going deeply into the problem are obtained under suitable conditions. Several examples of bubbles to illustrate the results and underline the importance of adopted assumptions are given.

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Cited in

(8)

• Notes on sequence economies, transaction costs, and uncertainty
• A simple optimality-based no-bubble theorem for deterministic sequential economies with strictly monotone preferences
• Cass transversality condition and sequential asset bubbles
• Optimism, pessimism and financial bubbles
• Stationary bubble equilibria in rational expectation models
• Idiosyncratic risks, self-insurance, and stochastic bubbles
• Martingale properties of self-enforcing debt
• On fragility of bubbles in equilibrium asset pricing models of Lucas-type

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