Long-run survival in limited stock market participation models with power utilities

TL;DR

This paper extends a limited participation model to include traders with varying time preferences, deriving conditions for equilibrium existence and long-term survival of all traders.

Contribution

It introduces a model with heterogeneous time preferences and provides parameter conditions for equilibrium existence and long-term trader survival.

Findings

Derived parameter restrictions for Radner equilibrium.

Established conditions for all traders to survive long-term.

Extended previous models to include diverse time preferences.

Abstract

We extend the limited participation model in Basak and Cuoco (1998) to allow for traders with different time-preference coefficients but identical constant relative risk-aversion coefficients. Our main result gives parameter restrictions which ensure the existence of a Radner equilibrium. As an application, we give further parameter restrictions which ensure all traders survive in the long run.