Economists have often had a bad habit of preferring problems that were tractable to problems that were important. Some problems are both tractable and important, and so they are heavily studied and properly so. Some are tractable but unimportant, and they are often studied to an appalling...

We relate wealth redistribution, asset pricing, and trade in financial assets by introducing heterogeneous agents into a Lucas tree-model. Heterogeneity of agents causes trade in financial assets and dynamic wealth redistribution. When consumers have time-separable, constant elasticity utilities...