Incomplete market demand tests for Kreps-Porteus-Selden preferences

• 成果类型: Article
• 署名作者: Kubler, Felix; Selden, Larry; Wei, Xiao
• 署名单位: University of Zurich; Swiss Finance Institute (SFI); Columbia University; Fudan University; Shanghai Institute of International Finance & Economics
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2019.104973
• 发表日期: 2020
• 关键词: Kreps-Porteus-Selden preferences; expected utility; Contingent claims; Integrability; incomplete markets

摘要

What does utility maximization subject to a budget constraint imply for intertemporal choice under uncertainty? Assuming consumers face a two period consumption-portfolio problem where asset markets are incomplete, we address this question following both the standard local infinitesimal and finite data approaches. To focus on the separate roles of time and risk preferences, individuals maximize KPS (Kreps- Porteus-Selden) preferences. The consumption-portfolio problem is decomposed into a one period portfolio problem and a two period certainty consumption-saving problem. We derive demand restrictions which are necessary and sufficient, for portfolio choices and certainty intertemporal consumption to have been generated by maximization, respectively, of a one period expected utility representation and a certainty representation of time preferences. Conditions are provided for recovering the building block time and risk preference utilities. For the finite data case, we derive a set of linear inequalities that are necessary and sufficient for observations to be consistent with the maximization of KPS utility. (C) 2019 Elsevier Inc. All rights reserved.