TY  - JOUR
AU  - Weil,Philippe
TI  - Equilibrium Asset Prices With Undiversifiable Labor Income Risk
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3975
PY  - 1992
Y2  - January 1992
UR  - http://www.nber.org/papers/w3975
L1  - http://www.nber.org/papers/w3975.pdf
N1  - Author contact info:
Philippe Weil
Director, Universite Libre de Bruxelles
ECARES
50, Avenue Roosevelt CP 114
B-1050 Brussels  BELGIUM
Tel: 32-2-650-4220
Fax: 32-2-650-4475
E-Mail: philippe.weil@ulb.ac.be
AB  - In a two-period Lucas tree economy in which ex ante identical, but ex post dissimilar, agents face undiversifiable labor income risk, calibrating a (wrong) representative agent model results in overstating the equilibrium riskfree rate and in understanding the equilibrium equity premium if the utility function exhibits decreasing absolute risk aversion and decreasing absolute prudence. These behavioral assumptions provide, as a consequence, a theoretical rationale for the often advanced conjecture that non-traded risk contributes to the solution of the riskfree rate and equity premium puzzles.
ER  -