RECURSIVE EQUILIBRIA IN AN AIYAGARI‐STYLE ECONOMY WITH PERMANENT INCOME SHOCKS

We prove existence of a recursive competitive equilibrium (RCE) for an Aiyagari‐style economy with permanent income shocks and derive important economic implications. We show that there exist equilibria where borrowing constraints are never binding and establish a nontrivial lower bound on the equilibrium interest rate. These results imply distinct consumption dynamics compared to existing studies. We present a new approach to solve the agent's problem that uses lattices of consumption functions to deal with permanent income shocks and an unbounded utility function. The approach provides a theoretical foundation for convergence of the time iteration algorithm widely used in applied work.     

IN SEARCH OF THE BEST BUNDLE: HILL-CLIMBING CONSUMERS AND THE MICRODYNAMICS OF CONSUMER CHOICE

Abstract. The paper considers the consequences of hill-climbing consumer behavior in the presence of nonconvex utility, and considers the optimal reactions of nonmyopic firms and governments to such behavior. Both firms and governments have an incentive to induce consumers to start consuming goods subject to nonconvexities by offering introductory price discounts. Monopolists appear to offer smaller introductory discounts than is optimal; competitive markets may never be able to supply such goods at all.     

MANAGING PUBLIC AND PRIVATE LAND THROUGH PARTIAL INTERESTS

As property rights concerns grow along with budget pressures, government agencies charged with balancing resource policy objectives need to consider institutional alternatives to regulation and land purchase. This paper examines how public agencies participate in markets for partial interests in public and private land as a means of influencing resource use and conservation. The paper also reviews the application of real option theory to the valuation of conservation easements and considers potential extensions to other partial interests.