In this paper we present a model of the term structure of interest rates with imperfect information and stochastic differential utility, a form of non-additive recursive utility. A principal feature of recursive utility, that distinguishes it from time-separable expected utility, is its dependence on the timing of resolution of uncertainty. In our model, we parametrize the non-linearity of recu...

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 equilibriu...

In this article, an analytical approximate solution method is given to provide investors with the means to make optimal consumption and portfolio choices with recursive utility in a complete market. The investment opportunity set is stochastic over time. The method is used to provide an exact determination of the unit elasticity of intertemporal substitution. An approximate solution method is d...

This paper presents an axiomatic foundation for recursive utility that captures the role of the timing of resolution of uncertainty without relying on exogenously speci®ed objective beliefs. Two main representation results are proved. In the ®rst one, future utility enters the recursion through the type of general aggregators considered in Skiadas (1997a), and as a result the formulation is pur...

This paper examines existence, continuity and characterization of optimal paths under “recursive” preferences. Current utility is a fixed (aggregator) function of current consumption and future utility. For suitable aggregators, a useful refinement of the Contraction Mapping Theorem generates the utility function, as in Lucas and Stokey. A broader class of aggregators is handled via a limiting ...

In this article, our objective is to determine efficient allocations in economies with multiple agents having recursive utility functions. Our main result is to show that in a multiagent economy, the problem of determining efficient allocations can be characterized in terms of a single value function (that of a social planner), rather than multiple value functions (one for each investor), as ha...