equity premium involves a race between `alpha` and the coefficient of relative risk aversion, `gamma`. A higher `alpha …

the world than many developing countries. A noteworthy feature of this theory is that financial and property rights …

risk is the dominant force, the size distribution of disasters follows a power law, and the economy has a representative … difference between the power-law tail parameter and the coefficient of relative risk aversion, γ. The options-pricing formula …

. However, in a Lucas-tree world, the aggregate risk is given by the process for GDP and cannot be altered by the creation of … will be nil. With heterogeneity in coefficients of relative risk aversion, safe assets can take the form of private bond … issues from low-risk-aversion to high-risk-aversion agents. The model assumes Epstein-Zin/Weil preferences with common values …

major features of asset prices and returns, such as the high equity premium and low risk-free rate. A Lucas-tree model with … rare but large disasters is such a framework. In a baseline simulation, the welfare cost of disaster risk is large … -- society would be willing to lower real GDP by about 20% each year to eliminate all disaster risk, including wars. In contrast …