BUBBLES AS PAYOFFS AT INFINITY

We define rational bubbles to be securities with payoffs occurring in the infinitely distant future and investigate the behavior of bubbles values. We extend our analysis to a setting of uncertainty. In an infi nite horizon arbitrage-free model of asset prices, we interpret the mo ney market account as the value of a particular bubble; a similar inte rpretation holds for other assets related to the state-price deflator and to payoffs on bonds maturing in the distant future. We present thr ee applications of this characterization of bubbles.