Asset Valuation and Production Efficiency in an Overlapping-Generations Model with Production Shocks.

This paper extends the Cass criterion for production efficiency to include uncertainty and uses it to show that a stock-market equilibrium in an overlapping-generations model with production uncertainty is efficient. It also develops a no-bubbles asset-pricing formula. Results are compared with W. A. Brock's (1982) infinite-lived consumer model and it is shown that the stock-market equilibrium in the overlapping-generations model has precisely the same asset valuation as Brock's infinitely-lived agent model. Copyright 1992 by The Review of Economic Studies Limited.