Heterogeneous Impatience in a Continuous-Time Model

Hara Chiaki

No 425, 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 study how the heterogeneity in the individual consumers' risk tolerance and impatience affects the representative consumer's risk tolerance and impatience. We derive some formulas, which indicate that the representative consumer's impatience decrease over time, and whether his risk tolerance increases or decreases over time depends on the sign of some weighted covariance between the individual consumers' cautiousness (derivative of risk tolerance with respect to own consumptions) and impatience. These results are then used to show that the short rate tends to decrease over time and the market price of risk is volatile in some special cases of heterogeneous economies.

Keywords: Representative consumer; risk tolerance; impatience; state-price deflator; shortrate process; market price of risk (search for similar items in EconPapers)
JEL-codes: D51 D53 D61 D81 D91 G12 G13 (search for similar items in EconPapers)
Date: 2009-03
Note: January 18, 2009

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Persistent link: http://EconPapers.repec.org/RePEc:hit:piecis:425

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