Dynamic Choice with Constant Source-Dependent Relative Risk Aversion, Economic Theory
An axiomatic characterization of recursive utility with source-dependent constant relative risk aversion (CRRA), constant elasticity of intertemporal substitution, constant rate of impatience and subjective beliefs is established. The utility form is a minimal extension of Epstein-Zin-Weil utility that allows the CRRA to depend on the source of risk, a dependence that admits an ambiguity aversion interpretation. Dual representations of the proposed recursive utility are discussed and shown to be useful in tackling the central-planner problem and associated asset-pricing applications. An appendix presents the continuous-time version of the utility form, which preserves the effect of ambiguity aversion under Brownian/Poisson uncertainty, despite its smoothness.
Skiadas, Constantinos. 2015. Dynamic Choice with Constant Source-Dependent Relative Risk Aversion. Economic Theory. 60(3): 393-422.LINK