THE EQUITY PREMIUM IN CONSUMPTION AND PRODUCTION MODELS

Levent Akdeniz and W. Davis Dechert

Macroeconomic Dynamics, 2012, vol. 16, issue S1, 139-148

Abstract: In this paper we use a simple model with a single Cobb–Douglas firm and a consumer with a CRRA utility function to show the difference between the equity premia in the production-based Brock model and the consumption-based Lucas model. With this simple example we show that the equity premium in the production-based model exceeds that of the consumption-based model with probability 1.

Date: 2012
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