Asset Prices in an Exchange Economy

Lucas, R. E. (1978). Asset Prices in an Exchange Economy. Econometrica, 46(6), 1429-1445.

Type

Journal article

Intellectual base

Primary research

Year

1978

DOI

10.2307/1913837

Link

https://doi.org/10.2307/1913837

Cited from

economics_finance

Cited by

2 citations across 2 artifacts.

Each citation links to the sentence it supports in the citing article.

Primes

• Marginal Utility
  • … equimarginal principle generalize to consumer choice under certainty (demand curves, substitution effects), intertemporal choice with discounting (the consumption Euler equation $U'(c_t) = \beta (1 + r) U'(c_{t+1})$ equates marginal utilities across time periods, weighted by the discount factor and real interest rate)
• Risk Aversion
  • … uncertainty, crop choice, adoption of new technologies); in health economics (insurance demand, willingness-to-pay for safety); in behavioral economics (departures from expected utility under prospect theory) ; in game theory (risk-dominance as a selection criterion); in macroeconomics (consumption-based asset pricing

    This sourceDerives equilibrium asset prices in a pure-exchange economy of identical agents, founding the consumption-based asset-pricing (CCAPM) framework in which risk premia depend on the covariance of returns with marginal utility of consumption.

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