Heterogeneous Impatience in a Continuous-Time Model

Hara Chiaki

No 396, PIE/CIS Discussion Paper from Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University

Abstract: In a continuous-time economy with complete markets, we show how the heterogeneity in the individual consumers' risk attitudes and impatience would affect the representative consumer's counterparts. Specifically, our formulas tell us how his risk tolerance and impatience will change over time, and how his impatience will be affected by the changes in aggregate consumption levels. Under the assumption of equal and constant relative risk aversion across individual consumers, we characterize his discount factor by means of a completely monotone function of time. These results are used to analyze short-rate processes.

Keywords: Representative consumer; expected utility; time additivity; multiplicative separability; impatience; risk tolerance; state-price deflator; short-rate process; complete monotonicity (search for similar items in EconPapers)
JEL-codes: D51 D53 D61 D81 D91 G12 G13 (search for similar items in EconPapers)
Date: 2008-08
Note: October 25, 2007

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Persistent link: http://EconPapers.repec.org/RePEc:hit:piecis:396

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