On fragility of bubbles in equilibrium asset pricing models of Lucas-type

In this paper we study the existence of bubbles for pricing equilibria in a pure exchange economy a Lucas, with infinitely lived homogeneous agents. T he model is analyzed under fairly general assumptions: no restrictions eith er on the stochastic process governing dividends' distribution or on the ut ilities (possibly unbounded) are required. We prove that the pricing equili brium is unique as long its the agents exhibit uniformly bounded relative r isk aversion. A generic uniqueness result is also given regardless of agent 's preferences. A few "pathological" examples or economics exhibiting prici ng equilibria with bubble components are constructed. Finally, a possible r elationship between our approach and the theory developed by Santos and Woo dford on ambiguous bubbles is investigated. The whole discussion sheds more insight on the common belief that bubbles are a marginal phenomenon in suc h models. (C) 2001 Academic Press.