Stationary Markov perfect equilibria in risk sensitive stochastic overlapping generations models

Anna Jaśkiewicz and Andrzej Nowak

Journal of Economic Theory, 2014, vol. 151, issue C, 411-447

Abstract: In this paper, we study intergenerational stochastic games that can be viewed as a special class of overlapping generations models under uncertainty. Making use of the theorem of Dvoretzky, Wald and Wolfowitz [27] from the statistical decision theory, we obtain new results on stationary Markov perfect equilibria for the aforementioned games, with a general state space, satisfying rather mild continuity and compactness conditions. A novel feature of our approach is the fact that we consider risk averse generations in the sense that they aggregate partial utilities using an exponential function. As a byproduct, we also provide a new existence theorem for intergenerational stochastic game within the standard framework where the aggregator is linear. Our assumptions imposed on the transition probability and utility functions allow to embrace a pretty large class of intergenerational stochastic games analysed recently in macroeconomics. Finally, we formulate a set of assumptions under which the stochastic process induced by the stationary Markov perfect equilibrium possesses an invariant distribution.

Keywords: Overlapping generations model; Intergenerational stochastic game; Risk sensitive optimisation; Stationary Markov perfect equilibrium (search for similar items in EconPapers)
JEL-codes: C62 C73 D91 O40 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:151:y:2014:i:c:p:411-447

DOI: 10.1016/j.jet.2014.01.005

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