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Efficient intertemporal allocations with recursive utility

Subject

Finance

Publishing details

IFA Working Paper

Authors / Editors

Dumas B;Uppal R;Wang T

Publication Year

1998

Abstract

In this article, our objective is to determine efficient allocations in economies with multiple agents having recursive utility functions. Our main result is to show that in a multiagent economy, the problem of determining efficient allocations can be characterized in terms of a single value function (that of a social planner), rather than multiple functions (one for each investor), as has been proposed thus far (Duffie, Geoffard and Skiadas (1994)). We then show how the single value function can be identified using the familiar technique of stochastic dynamic programming. We achieve these goals by first extending to a stochastic environment Geoffard's (1996) concept of variational utility and his result that variational utility is equivalent to recursive utility, and then using these results to characterize allocations in a multiagent setting.

Publication Notes

This working paper was published in the Journal of Economic Theory 2000 Vol 93:2 p 240-259 (see separate entry)

Publication Research Centre

Institute of Finance and Accounting

Series Number

FIN 267

Series

IFA Working Paper

Available on ECCH

No


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