Survival and long-run dynamics with heterogeneous beliefs under recursive preferences

Jaroslav Borovička

    Research output: Contribution to journalArticle

    Abstract

    I analytically characterize the long-run behavior of an economy with two types of agents who differ in their beliefs and are endowed with homothetic recursive preferences. Agents with more incorrect beliefs dominate, or agents with different accuracy of their beliefs coexist in the long run, for broad ranges of plausible parameterizations when risk aversion is greater than the inverse of the intertemporal elasticity of substitution. The results highlight a crucial interaction between risk sharing, speculative behavior and consumption-saving choice of agents with heterogeneous beliefs, and the role of equilibrium prices in shaping long-run outcomes.

    Original languageEnglish (US)
    Pages (from-to)206-251
    Number of pages46
    JournalJournal of Political Economy
    Volume128
    Issue number1
    DOIs
    StatePublished - Jan 1 2020

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    ASJC Scopus subject areas

    • Economics and Econometrics

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