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Lipschitz recursive equilibrium with a minimal state space and heterogeneous agents

Rodrigo Raad () and Łukasz Woźny

Journal of Mathematical Economics, 2019, vol. 82, issue C, 98-111

Abstract: This paper analyzes the Lucas tree model with heterogeneous agents and one asset. We show the existence of a minimal state space Lipschitz continuous recursive equilibrium using Montrucchio (1987) results. The recursive equilibrium implements a sequential equilibrium through an explicit functional equation derived from the Bellman Equation. Our method also allows to prove existence of a recursive equilibrium in a general class of deterministic or stochastic models with several assets provided there exists a Lipschitz selection on the demand correspondence. We provide examples showing applicability of our results.

Keywords: Lucas tree model; Recursive equilibrium; Minimal state space; Lipschitz demand; Heterogeneous agents; Incomplete markets (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.jmateco.2019.01.006

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Handle: RePEc:eee:mateco:v:82:y:2019:i:c:p:98-111