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Relative Extinction of Heterogeneous Agents

Author

Listed:
  • Cvitanic Jaksa

    (California Institute of Technology, cvitanic@hss.caltech.edu)

  • Malamud Semyon

    (Swiss Federal Institute of Technology, Lausanne and Swiss Finance Institute, semyon.malamud@epfl.ch)

Abstract

In all the existing literature on survival in heterogeneous economies, the rate at which an agent vanishes in the long run relative to another agent can be characterized by the difference of the so-called survival indices, where each survival index only depends on the preferences of the corresponding agent and the properties of the aggregate endowment. In particular, one agent experiences extinction relative to another (that is, the wealth ratio of the two agents goes to zero) if and only if she has a smaller survival index. We consider a simple complete market model and show that the survival index is more complex if there are more than two agents in the economy. In fact, the following phenomenon may take place: even if agent one experiences extinction relative to agent two, adding a third agent to the economy may reverse the situation and force the agent two to experience extinction relative to agent one. We also calculate the rates of convergence.

Suggested Citation

  • Cvitanic Jaksa & Malamud Semyon, 2010. "Relative Extinction of Heterogeneous Agents," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-23, February.
    • Handle: RePEc:bpj:bejtec:v:10:y:2010:i:1:n:4
    DOI: 10.2202/1935-1704.1605
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    References listed on IDEAS

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    Cited by:

    1. Chabakauri, Georgy, 2010. "Asset pricing with heterogeneous investors and portfolio constraints," LSE Research Online Documents on Economics 43142, London School of Economics and Political Science, LSE Library.
    2. Harjoat S. Bhamra & Raman Uppal, 2014. "Asset Prices with Heterogeneity in Preferences and Beliefs," The Review of Financial Studies, Society for Financial Studies, vol. 27(2), pages 519-580.
    3. Bottazzi, Giulio & Dindo, Pietro, 2022. "Drift criteria for persistence of discrete stochastic processes on the line," Journal of Mathematical Economics, Elsevier, vol. 101(C).
    4. Jaksa Cvitanic & Elyès Jouini & Semyon Malamud & Clotilde Napp, 2011. "Financial Markets Equilibrium with Heterogeneous Agents," Review of Finance, European Finance Association, vol. 16(1), pages 285-321.
    5. Roman Muraviev, 2013. "Market selection with learning and catching up with the Joneses," Finance and Stochastics, Springer, vol. 17(2), pages 273-304, April.
    6. Dindo, Pietro, 2019. "Survival in speculative markets," Journal of Economic Theory, Elsevier, vol. 181(C), pages 1-43.
    7. Agostino Capponi & Martin Larsson, 2011. "Default and Systemic Risk in Equilibrium," Papers 1108.1133, arXiv.org, revised Dec 2011.

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