We develop a model of rational bubbles based on the assumptions of unknown market liquidity and limited liability of traders. In a bubble, the price of an asset rises dynamically above its steady-state value, justified by rational expectations about future price developments. The larger the...

We develop a model of rational bubbles, based on the assumptions of an unknown potential market size and delegation of investment decisions. In a bubble, the price of an asset rises above its steady-state value, which must be justified by rational expectations about possible future price...

We develop a model of rational bubbles based on the assumptions of unknown market liquidity and limited liability of traders. In a bubble, the price of an asset rises dynamically above its steady-state value, justified by rational expectations about future price developments. The larger the...