Rational Land and Housing Bubbles in Infinite-Horizon Economies

Chapter
First Online:
Part of the Studies in Economic Theory book series (ECON.THEORY, volume 31)

Abstract

This paper considers rational land and housing bubbles in an infinite-horizon general equilibrium model. Their demands rest on two different grounds: the land is an input to produce while the house may be consumed. Our work differs from the existing literature in two respects. First, dividends on both these long-lived assets are endogenous and their sequences are computed. Second, we introduce and study different concepts of bubbles, including individual and strong bubbles.

Keywords

Infinite horizon General equilibrium Land bubble Housing bubble 

JEL classification

C62 D51 D9 G13 
This is a preview of subscription content, log in to check access.

References

  1. Aoki, K., Nakajima, T., & Nikolov, K. (2014). Safe asset shortages and asset price bubbles. Journal of Mathematical Economics, 53, 165–174.CrossRefGoogle Scholar
  2. Araujo, A., Novinski, R., & Pascoa, M. R. (2011). General equilibrium, wariness and efficient bubbles. Journal of Economic Theory, 146, 785–811.CrossRefGoogle Scholar
  3. Araujo, A., Pascoa, M. R., & Torres-Martinez, J. P. (2011). Long-lived collateralized assets and bubbles. Journal of Mathematical Economics, 47, 260–271.CrossRefGoogle Scholar
  4. Balasko, Y., & Shell, K. (1980). The overlapping generations model I: The case of pure exchange without money. Journal of Economic Theory, 23, 281–306.CrossRefGoogle Scholar
  5. Becker, R. A., Dubey, R. S., & Mitra, T. (2014). On Ramsey equilibrium: Capital ownership pattern and inefficiency. Economic Theory, 55, 565–600.CrossRefGoogle Scholar
  6. Becker, R., Bosi, S., Le Van, C., & Seegmuller, T. (2015). On existence and bubbles of Ramsey equilibrium with borrowing constraints. Economic Theory, 58, 329–353.CrossRefGoogle Scholar
  7. Bosi, S., Le Van, C., & Pham, N. -S. (2015a). Asset bubbles and efficiency in a generalized two-sector model, LEM working paper.Google Scholar
  8. Bosi, S., Le Van, C., & Pham, N. -S. (2015b). Intertemporal equilibrium with heterogeneous agents, endogenous dividends and borrowing constraints, EPEE working paper.Google Scholar
  9. Brunnermeier M. K., Oehmke, M. (2012). Bubbles, financial crises, and systemic risk. Handbook of the Economics of Finance, 2.Google Scholar
  10. Cass, D. (1972). On capital overaccumulation in the aggregative, neoclassical model of economic growth: A complete characterization. Journal of Economic Theory, 4, 200–223.CrossRefGoogle Scholar
  11. Farhi, E., & Tirole, J. (2012). Bubbly liquidity. Review of Economic Studies, 79, 678–706.CrossRefGoogle Scholar
  12. Hirano T., & Yanagawa, N. (2013). Asset bubbles, endogenous growth and financial frictions. Working Paper, University of Tokyo.Google Scholar
  13. Huang, K. X. D., & Werner, J. (2000). Asset price bubbles in Arrow-Debreu and sequential equilibrium. Economic Theory, 15, 253–278.CrossRefGoogle Scholar
  14. Kamihigashi, T. (2002). A simple proof of the necessity of the transversality condition. Economic Theory, 20, 427–433.CrossRefGoogle Scholar
  15. Kocherlakota, N. R. (1992). Bubbles and constraints on debt accumulation. Journal of Economic Theory, 57, 245–256.CrossRefGoogle Scholar
  16. Le Van, C., & Pham, N. S. (2014). Financial asset bubble with heterogeneous agents and endogenous borrowing constraints, Working paper.Google Scholar
  17. Le Van C., & Pham, N. S. (2016). Intertemporal equilibrium with financial asset and physical capital. Economic Theory, 62, 155–199.Google Scholar
  18. Miao, J. (2014). Introduction to economic theory of bubbles. Journal of Mathematical Economics, 53, 130–136.CrossRefGoogle Scholar
  19. Miao, J., & Wang, P. (2012). Bubbles and total factor productivity. American Economic Review: Papers and Proceedings, 102, 82–87.CrossRefGoogle Scholar
  20. Miao, J., & Wang, P. (2015). Bubbles and credit constraints, working paper, Boston University.Google Scholar
  21. Montrucchio, L. (2004). Cass transversality condition and sequential asset bubbles. Economic Theory, 24, 645–663.CrossRefGoogle Scholar
  22. Santos, M. S., & Woodford, M. (1997). Rational asset pricing bubbles. Econometrica, 65, 19–57.CrossRefGoogle Scholar
  23. Tirole, J. (1982). On the possibility of speculation under rational expectations. Econometrica, 50, 1163–1181.CrossRefGoogle Scholar
  24. Tirole, J. (1985). Asset bubbles and overlapping generations. Econometrica, 53, 1499–1528.CrossRefGoogle Scholar
  25. Weil, P. (1990). On the possibility of price decreasing bubbles. Econometrica, 58, 1467–1474.CrossRefGoogle Scholar
  26. Werner, J. (2014). Speculative trade under ambiguity. Mimeo.Google Scholar

Copyright information

© Springer International Publishing AG 2017

Authors and Affiliations

  1. 1.EPEEUniversity of EvryEvryFrance
  2. 2.IPAG, CNRS, and Paris School of EconomicsParisFrance
  3. 3.LEMUniversity of Lille 3LilleFrance

Personalised recommendations