Details

Related name

• National Bureau of Economic Research [Browse]

Series

• Working Paper Series (National Bureau of Economic Research) no. w3279. [More in this series]
• NBER working paper series no. w3279

Summary note

This paper introduces a utility function that nests three classes of utility functions: (1) time-separable utility functions; (2) "catching up with the Joneses" utility functions that depend on the consumer's level of consumption relative to the lagged cross-sectional average level of consumption; and (3) utility functions that display habit formation. Closed-form solutions for equilibrium asset prices are derived under the assumption that consumption growth is i.i.d. The equity premia under catching up with the Joneses and under habit formation are, for some parameter values, as large as the historically observed equity premium in the United States.

Notes

March 1990.

Source of description

Print version record

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