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| Author: | Gollier, C. |
| Title: | Misery loves company: equilibrium portfolios with heterogenous consumption externalities |
| Journal: | International Economic Review
2004 : NOV, VOL. 45:4, p. 1169-1192 |
| Index terms: | Consumption Equilibrium analysis Externalities Portfolio management |
| Language: | eng |
| Abstract: | This article extends the Arrow-Debreu portfolio model to consumption externalities. It is assumed that each investor has a von Neumann-Morgenstern utility that is a function of her own consumption and of the average consumption in the group to which she belongs. Individual degrees of risk aversion and conformism are heterogenous within each group and between the different groups in the economy. It is shown that, under some conditions on the degree of conformism in the economy, the optimal portfolio and consumption choices observed at equilibrium in each group with consumption externalities are equivalent to those that are optimal without any externality, but with an adjusted degree of risk aversion. |
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