This study examines joint decisions regarding risky asset allocation and consumption rate for a representative agent in the presence of background risk and insurance markets. Contrary to the conclusion of the “mutual fund separation theorem”, we show that the optimal risky asset mix will...

A no-arbitrage rule of consumption and a golden rule of capital accumulation are derived under the assumptions that the satisfaction from consumption is spoiled by environmental degradation caused by industrialisation but moderated by cleaning up and greening operations.