On trees and logs

• 成果类型: Article
• 署名作者: Cass, D; Pavlova, A
• 署名单位: Massachusetts Institute of Technology (MIT); University of Pennsylvania
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2003.05.001
• 发表日期: 2004
• 页码: 41-83
• 关键词: lucas tree model; equilibrium theory; peculiar financial equilibrium; nonuniqueness of equilibria; Portfolio constraints

摘要

In this paper we contrast the main workhorse model in asset pricing theory, the Lucas (1978) tree model (LT-Model), to a benchmark model in financial equilibrium theory, the real assets model (RA-Model). It is commonly believed that the two models entail similar conclusions since the LT-Model is a special case of the RA-Model. But this is simply wrong: implications of these models can be strikingly at odds. Indeed, under the widely used log-linear specification of households' preferences, we show that for a large set of initial endowments the LT-Model-even with potentially complete financial markets-admits only peculiar financial equilibria in which the stock market is completely degenerate, in that all stocks offer the same investment opportunity-and yet, allocation is Pareto optimal. We investigate why the LT-Model is so much at variance with the RA-Model, and uncover new results on uniqueness of financial equilibria and introduction of portfolio constraints obtaining in the LT-Model, but not in the RA-Model. (C) 2003 Elsevier Inc. All rights reserved.