Consider a two-period economy. An agent's preferences for consumption at time t are represented by a CRRA
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Consider a two-period economy. An agent's preferences for consumption at time t are represented by a CRRA utility function with coefficient of relative risk aversion equal to 1. The consumer maximizes u(ca) + E1u(c2), with subjective discount factor 8 = 0.9. The agent has an endowment eg = 10 at time 1
and a stochastic endowment ez at time 2, with Eye2 = 10.
a) Suppose in the economy there is a risk free asset with R = 1
0.0• Does the
agent save a strictly positive amount at time 1?
b) Does the result you obtained in part a) hold for any risk averse prefer-ences?
Related Book For
Financial and Managerial Accounting the basis for business decisions
ISBN: 978-0078025778
17th edition
Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello
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