Results

**11 - 17**of**17**### Two-State Finance Economies ∗

"... The effect of replacing an agent in a two-person two-state finance economy by a more risk averse agent is studied. It is established under which conditions the other agent benefits or looses in equilibrium from dealing with a more risk averse agent. If one agent becomes more risk averse, then the eq ..."

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The effect of replacing an agent in a two-person two-state finance economy by a more risk averse agent is studied. It is established under which conditions the other agent benefits or looses in equilibrium from dealing with a more risk averse agent. If one agent becomes more risk averse, then the equilibrium allocation moves towards that agent’s certainty line. Whether or not that is beneficial for the other agent depends on the location of the endowment point.

### Harvard University Global Health Sciences

, 2003

"... Partial support for preparation of this paper was provided by ..."

### given to the source. Collective Investment Decision Making with Heterogeneous Time Preferences

, 2003

"... We examine the investment decision problem of a group whose members have heterogeneous time preferences. In particular, they have different discount factors for utility, possibly not exponential. We characterize the properties of efficient allocations of resources and of shadow prices that would dec ..."

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We examine the investment decision problem of a group whose members have heterogeneous time preferences. In particular, they have different discount factors for utility, possibly not exponential. We characterize the properties of efficient allocations of resources and of shadow prices that would decentralize such allocations. We show in particular that the term structure of interest rates is decreasing when all members have DARA preferences. Heterogeneous groups should not use exponential discounting for their collective investment decisions even if all agents discount exponentially. We also exhibit conditions that lead the representative agent to have a rate of impatience that decreases with GDP per capita.

### Asset Pricing and the One Percent∗

, 2014

"... We find that when the income share of the top 1 % income earners in the U.S. rises above trend by one percentage point, subsequent one year market excess returns decline on average by 5.6%. This negative relation remains strong and significant even when controlling for classic return predictors such ..."

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We find that when the income share of the top 1 % income earners in the U.S. rises above trend by one percentage point, subsequent one year market excess returns decline on average by 5.6%. This negative relation remains strong and significant even when controlling for classic return predictors such as the price-dividend and the consumption-wealth ratios. To explain this stylized fact, we build a general equilibrium asset pricing model with heterogeneity in wealth and risk aversion across agents. Our model admits a testable moment condition and a novel two factor covariance pricing formula, where one factor is inequality. Intuitively, when wealth shifts into the hands of rich and risk tolerant agents, average risk aversion falls, pushing down the risk premium. Our model is broadly consistent with data and provides a novel positive explanation of both market excess returns over time and the cross section of returns across stocks.

### Effects of Background Risks on Cautiousness with an Application to a Portfolio Choice Problem

, 2008

"... We provide a necessary and a sufficient condition on an individual’s expected util-ity function under which any zero-mean idiosyncratic risk increases cautiousness (the derivative of the reciprocal of the absolute risk aversion), which is the key determinant for this individual’s demand for options ..."

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We provide a necessary and a sufficient condition on an individual’s expected util-ity function under which any zero-mean idiosyncratic risk increases cautiousness (the derivative of the reciprocal of the absolute risk aversion), which is the key determinant for this individual’s demand for options and portfolio insurance.

### The Dynamics of Optimal Risk Sharing∗

, 2006

"... In this paper we study a dynamic contracting problem of optimal risk-sharing between a principal and an agent who invest in a common constant-returns-to-scale risky venture. Investment flow-returns fol-low a geometric Brownian motion and the two agents ’ risk-preferences are represented by additivel ..."

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In this paper we study a dynamic contracting problem of optimal risk-sharing between a principal and an agent who invest in a common constant-returns-to-scale risky venture. Investment flow-returns fol-low a geometric Brownian motion and the two agents ’ risk-preferences are represented by additively separable utility functions exhibiting constant relative risk-aversion (CRRA). Principal and agent have dif-ferent coefficients of relative risk-aversion. In any time period they invest their wealth in the risky venture and optimally share the un-derlying return risk and termination risk. When the project ends the two individuals divide the accumulated proceeds as specified in the risk-sharing contract and consume their final accumulated wealth. The paper characterizes risk-sharing formulae that approximate the optimal risk-sharing rules. 1