Trees (Stocks) in the Utility Function Consider the following version of Lucas's tree economy. There are two kinds of trees. The first kind is ugly and gives no direct utility in itself but yields a stream of fruit (d), where

d, is a positive random process obeying a first- order Markov process. The fruit is nonstorable and gives utility. The second kind of tree is beautiful and so yields utility in itself. This tree also yields a stream of the same kind of fruit (d2), where it happens that

d, d, (1/2)d, for all t, so that the physical yields of the two kinds of trees are equal. There is one of each kind of tree for each of the Nindividuals in the economy. Trees last forever, but the fruit is not storable. Trees are the only source of fruit.