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Market Equilibrium with Heterogenous Recursive-Utility-Maximizing Agents

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  • Ma, Chenghu

Abstract

This paper considers a heterogeneous agent Lucas style exchange economy. For a class of recursive utility functions containing the standard additive expected utility functions, I demonstrate that there exist market equilibria characterized by stationary (ergodic) Markov processes for consumption, portfolio holdings, asset prices and the unobserved utilities. No assumptions about market completeness are made, and there are no restrictions on the underlying information filtration. Other contributions of this paper include: (1) an existence and uniqueness theorem of intertemporal utility for the general class of recursive generators; (2) the optimum principle as well as its corresponding Euler equation derived for the agent's consumption and portfolio choice problem under recursive utility, and (3) a single-agent equilibrium asset pricing formula which generalizes that of Epstein and Zin (1989).

Suggested Citation

  • Ma, Chenghu, 1993. "Market Equilibrium with Heterogenous Recursive-Utility-Maximizing Agents," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(2), pages 243-266, April.
    • Handle: RePEc:spr:joecth:v:3:y:1993:i:2:p:243-66
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    Citations

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    Cited by:

    1. Ma, Chenghu, 2000. "An existence theorem of intertemporal recursive utility in the presence of Levy jumps," Journal of Mathematical Economics, Elsevier, vol. 34(4), pages 509-526, December.
    2. Anderson, Evan W., 2005. "The dynamics of risk-sensitive allocations," Journal of Economic Theory, Elsevier, vol. 125(2), pages 93-150, December.
    3. Wing-Keung Wong & Chenghu Ma, 2008. "Preferences over location-scale family," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 37(1), pages 119-146, October.
    4. Mariano M. Croce & Riccardo Colacito, 2010. "International Asset Pricing with Risk-Sensitive Rare Events," 2010 Meeting Papers 176, Society for Economic Dynamics.
    5. Toda, Alexis Akira, 2014. "Incomplete market dynamics and cross-sectional distributions," Journal of Economic Theory, Elsevier, vol. 154(C), pages 310-348.
    6. Dindo, Pietro, 2019. "Survival in speculative markets," Journal of Economic Theory, Elsevier, vol. 181(C), pages 1-43.
    7. Ma, Chenghu, 2006. "Intertemporal recursive utility and an equilibrium asset pricing model in the presence of Levy jumps," Journal of Mathematical Economics, Elsevier, vol. 42(2), pages 131-160, April.
    8. Mariano Croce & Riccardo Colacito, 2009. "Risk sensitive allocations with multiple goods in international finance. Existence, survivorship, and dynamics," 2009 Meeting Papers 1201, Society for Economic Dynamics.
    9. Jing Guo & Xue Dong He, 2021. "Recursive Utility with Investment Gains and Losses: Existence, Uniqueness, and Convergence," Papers 2107.05163, arXiv.org.
    10. Marinacci, Massimo & Montrucchio, Luigi, 2010. "Unique solutions for stochastic recursive utilities," Journal of Economic Theory, Elsevier, vol. 145(5), pages 1776-1804, September.
    11. Bhamra, Harjoat S. & Uppal, Raman, 2006. "The role of risk aversion and intertemporal substitution in dynamic consumption-portfolio choice with recursive utility," Journal of Economic Dynamics and Control, Elsevier, vol. 30(6), pages 967-991, June.
    12. Chabakauri, Georgy, 2015. "Dynamic equilibrium with rare events and heterogeneous Epstein-Zin investors," LSE Research Online Documents on Economics 60737, London School of Economics and Political Science, LSE Library.

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