Efficient Intertemporal Allocations with Recursive Utility

Abstract

In this article, our objective is to determine efficient allocations in economies with multiple agents having recursive, non-time-additive utility functions. Our main result is to show that in a multi-agent economy, the problem of determining efficient allocations can be characterized in terms of a single value function (that of a social planner), rather than multiple functions (one for each investor), as has been proposed thus far (D. Duffie et al., 1994, J. Math. Econ.23, 133–146). We then show how the single value function can be identified using the familiar technique of stochastic dynamic programming. Journal of Economic Literature Classification Numbers: D81, D61, D91, C61.