Parlour, Christine A.; Stanton, Richard; Walden, Johan - In: Review of Financial Studies 24 (2011) 3, pp. 629-674
We show that several well-known asset pricing puzzles are largely mitigated if we endow the representative agent with an arbitrarily small minimum consumption level. This allows us to solve the model for parameter values where the standard "Lucas tree" model is not defined. For these parameters,...