nep-dge New Economics Papers
on Dynamic General Equilibrium
Issue of 2005‒11‒09
two papers chosen by
Christian Zimmermann
University of Connecticut

  1. Asset prices and capital accumulation in a monetary economy with incomplete markets By sunanda roy
  2. Expected utility without utility By Erio Castagnoli; Marco LiCalzi

  1. By: sunanda roy (drake university)
    Abstract: The paper studies asset prices and capital accumulation in a monetary economy with non-diversifiable idiosyncratic risks (incomplete markets). A government issued unbacked currency is introduced into agent's preferences in a dynamic GEI (General Equilibrium with Incomplete market) model with CARA preferences and normal disturbances. Closed form expressions for equlibrium allocations and prices are derived under finite and infinite horizons. The paper addresses several monetary issues. In particular, money is shown to be neutral but not superneutral at the steady state. The rate of inflation is shown to adversely affect the steady state capital stock under some situations. Finally the Friedman rule is shown to be non-optimal for some economies.
    JEL: C6 D5 D9
    Date: 2005–08–09
  2. By: Erio Castagnoli (Bocconi University, Italy); Marco LiCalzi (University of Venice, Italy)
    Abstract: This paper advances an interpretation of Von Neumann–Morgenstern’s expected utility model for preferences over lotteries which does not require the notion of a cardinal utility over prizes and can be phrased entirely in the language of probability. According to it, the expected utility of a lottery can be read as the probability that this lottery outperforms another given independent lottery. The implications of this interpretation for some topics and models in decision theory are considered.
    Keywords: expected utility, cardinal utility, benchmark, risk attitude, stochastic dominance
    JEL: C7 D8
    Date: 2005–08–08

This nep-dge issue is ©2005 by Christian Zimmermann. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.