Market Equilibrium with Heterogenous Recursive-Utility-Maximizing Agents.

This paper considers a heterogeneous agent Lucas style exchange economy. For a class of recursive utility functions containing the standard additive expected utility functions, I demonstrate that there exist market equilibria characterized by stationary (ergodic) Markov processes for consumption, portfolio holdings, asset prices and the unobserved utilities. No assumptions about market completeness are made, and there are no restrictions on the underlying information filtration. Other contributions of this paper include: (1) an existence and uniqueness theorem of intertemporal utility for the general class of recursive generators; (2) the optimum principle as well as its corresponding Euler equation derived for the agent's consumption and portfolio choice problem under recursive utility, and (3) a single-agent equilibrium asset pricing formula which generalizes that of Epstein and Zin (1989).