Recursive preferences and balanced growth

We study a class of utility functions that are defined recursively by an aggregator W (x, y) where ut =W ( ct , ut+1 ) . In single-agent economies it is known that a sufficient condition for the existence of a balanced growth path is that utility should be homogenous of degree . In the context of a multiagent economy we show that this restriction implies that either a balanced growth equilibrium fails to exist or all agents have the same constant discount factor. We suggest a generalization of recursive preferences wherein the intertemporal utility function is time dependent.Within this class we establish that there may exist a balanced growth equilibrium even if agents are different. © 2004 Elsevier Inc. All rights reserved. JEL classification: D50; D90; F43