Diverse Beliefs, Survival and the Market Price of Risk

Timothy Cogley and Thomas Sargent

Economic Journal, 2009, vol. 119, issue 536, 354-376

Abstract: We study prices and allocations in a complete‐markets, pure‐exchange economy in which there are two types of agents with different priors over infinite sequences of the aggregate endowment. Aggregate consumption growth evolves exogenously according to a two‐state Markov process. The economy has two types of agents, one that learns about transition probabilities and another that knows them. We examine allocations, the market price of risk and the rate at which asset prices converge to values that would be computed under the assumption that all agents know the transition probabilities.

Date: 2009
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https://doi.org/10.1111/j.1468-0297.2008.02237.x

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