Heterogeneous Risk Attitudes in a Continuous-Time Model

Chiaki Hara ()

No 609, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: We prove that every continuous-time model in which all consumers have time-homogeneous and time-additive utility functions and share a common probabilistic belief and a common discount rate can be reduced to a static model. This result allows us to extend some of the existing results on the representative consumer and risk-sharing rules in static models to continuous-time models. We show that the equilibrium interest rate is lower and more volatile than in the standard representative consumer economy, and that the individual consumption growth rates are more dispersed than is predicted from the first-order conditions.

Keywords: Heterogeneity; risk attitudes; hyperbolic absolute risk aversion; representative consumer; risk-sharing rules; mutual fund theorem; Ito's Lemma; interest rates. (search for similar items in EconPapers)
JEL-codes: D51 D58 D81 D91 G11 G12 G13 (search for similar items in EconPapers)
Pages: 31pages
Date: 2005-12
New Economics Papers: this item is included in nep-fin and nep-upt
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http://www.kier.kyoto-u.ac.jp/DP/DP609.pdf (application/pdf)

Related works:
Journal Article: HETEROGENEOUS RISK ATTITUDES IN A CONTINUOUS‐TIME MODEL* (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:kyo:wpaper:609

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