Resumen de Pricing Risk in Economies with Heterogenous Agents and Incomplete Markets
Habit formation has been proposed as a possible solution to the equity premiumpuzzle. This paper extends the class of models that support the habits explanation inorder to account for heterogeneity in earnings, wealth, habits and consumption. I findthat habit formation does indeed increase the equity premium. However, contraryto earlier results, the habit hypothesis does not imply a price for risk as big as theone measured in the data. There are three reasons for this. First, households ina habits economy modify their consumption/savings decision. Second, they modifytheir portfolio choice. These two changes in behavior diminish the consumptionfluctuations faced by households. And third, the composition of the set of agentspricing risk in the economy changes so that relatively better self-insured householdsend up pricing risk
