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Fabio Privileggi

Membro Associato a POLIS
Ufficio 307
Via Cavour 84, 15121 Alessandria

email: fabio.privileggi@unito.it
Fax: 0131 283 704





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PRIVILEGGI Fabio and Luigi MONTRUCCHIO (2001), "On Fragility of Bubbles in Equilibrium Asset Pricing Models of Lucas-Type", Journal of Economic Theory, 101 (1), 158-188.
J.E.L codes: C61, C62, D51, G12

Abstract
In this paper we study the existence of bubbles for pricing equilibria in a pure exchange economy à la Lucas, with infinitely lived homogeneous agents. The model is analyzed under fairly general assumptions: no restrictions either on the stochastic process governing dividends' distribution or on the utilities (possibly unbounded) are required. We prove that the pricing equilibrium is unique as long as the agents exhibit uniformly bounded relative risk aversion. A generic uniqueness result is also given regardless of agent's preferences. A few “pathological” examples of economies exhibiting pricing equilibria with bubble components are constructed. Finally, a possible relationship between our approach and the theory developed by Santos and Woodford on ambiguous bubbles is investigated. The whole discussion sheds more insight on the common belief that bubbles are a marginal phenomenon in such models.

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