Re: bubbles and panics, or rational responses?

[Basil Moore <bmoore@xxxxxxxxxxxx>]

  James Olsen

        The claim is that asset values are the discounted present value of
the future income stream to which the owner is entitled. If the income
stream is a perpetuity, and if it is expected to grow at a rate in excess of
the rate at which the asset is discounted, the discounted present value of
the asset becomes infinite.

        It does not of course follow that the price will be infinite. But it
is the cause of a "rational bubble".

        Basil Moore






11:17 PM 10/8/97 -0400, you wrote:
>At 06:14 PM 10/9/97 +0000, Oliver Kamm wrote:
>
>> Consider what happened to the UK stock market when sterling left the
>European >Exchange Rate Mechanism - not a bubble, but a rational response
>to new >information.
>
>Interpreting one price collapse as the result of a rational response to new
>information doesn't mean that every collapse fits the mold, or that there
>is no such thing as a price bubble.
>
>Are you claiming that the Tokyo land bubble was a rational response to the
>intrinsic value of Tokyo real estate?
>
>


Basil Moore, Department of Economics
Wesleyan University
685-2363