Assume a discrete-time economy with L agents. Each agent maximizes timeadditive expected utility E T t=0
Question:
Assume a discrete-time economy with L agents. Each agent maximizes timeadditive expected utility E T t=0 βt
u(ct)
where u is strictly increasing and concave.
Show that
ζt+1
ζt
=
L
=1 βu
(c,t+1)
L
=1 u
(ct)
is a valid one-period state-price deflator. How do you define the full state-price deflator process ζ = (ζt)?
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