Header

UZH-Logo

Maintenance Infos

Incomplete market demand tests for Kreps-Porteus-Selden preferences


Kübler, Felix; Selden, Larry; Wei, Xiao (2020). Incomplete market demand tests for Kreps-Porteus-Selden preferences. Journal of Economic Theory, 185:104973.

Abstract

What does utility maximization subject to a budget constraint imply for intertemporal choice under uncertainty? Assuming consumers face a two period consumption-portfolio problem where asset markets are incomplete, we address this question following both the standard local infinitesimal and finite data approaches. To focus on the separate roles of time and risk preferences, individuals maximize KPS (Kreps-Porteus-Selden) preferences. The consumption-portfolio problem is decomposed into a one period portfolio problem and a two period certainty consumption-saving problem. We derive demand restrictions which are necessary and sufficient, for portfolio choices and certainty intertemporal consumption to have been generated by maximization, respectively, of a one period expected utility representation and a certainty representation of time preferences. Conditions are provided for recovering the building block time and risk preference utilities. For the finite data case, we derive a set of linear inequalities that are necessary and sufficient for observations to be consistent with the maximization of KPS utility.

Abstract

What does utility maximization subject to a budget constraint imply for intertemporal choice under uncertainty? Assuming consumers face a two period consumption-portfolio problem where asset markets are incomplete, we address this question following both the standard local infinitesimal and finite data approaches. To focus on the separate roles of time and risk preferences, individuals maximize KPS (Kreps-Porteus-Selden) preferences. The consumption-portfolio problem is decomposed into a one period portfolio problem and a two period certainty consumption-saving problem. We derive demand restrictions which are necessary and sufficient, for portfolio choices and certainty intertemporal consumption to have been generated by maximization, respectively, of a one period expected utility representation and a certainty representation of time preferences. Conditions are provided for recovering the building block time and risk preference utilities. For the finite data case, we derive a set of linear inequalities that are necessary and sufficient for observations to be consistent with the maximization of KPS utility.

Statistics

Citations

Altmetrics

Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > Economics and Econometrics
Language:English
Date:1 January 2020
Deposited On:15 Oct 2020 14:34
Last Modified:16 Oct 2020 20:00
Publisher:Elsevier
ISSN:0022-0531
OA Status:Closed
Publisher DOI:https://doi.org/10.1016/j.jet.2019.104973
Related URLs:https://www.semanticscholar.org/paper/Integrability-of-Demand-in-Incomplete-Markets%3A-Kubler-Selden/5b29a1166b0a9ebf59e51a7d0bd755bced5ab7b1 (Organisation)
Other Identification Number:merlin-id:18838

Download

Full text not available from this repository.
View at publisher

Get full-text in a library