Re: bubbles and panics, or rational responses?

[Basil Moore <bmoore@xxxxxxxxxxxx>]

Mike Metz
There are financial assets that are perpetuities in the UK; Consuls. Land is
a tangible asset with a perpetual expected life. Equities may also
approximate an infinite life-span.
In Japan, companies owned large amounts of land, so that gave them infinite
asset value.

        Basil Moore


At 06:39 PM 10/9/97 -0500, you wrote:
>Basil Moore,
>Question on rational bubbles, rational expectations and growth.
>If what you have in mind is a representative agent model, what is your theory
>behind the supposition that an asset could have a positive growth rate in
>the long run?
>
>That is, does discounted present value over an *infinite* horizon really
>mean anything to asset markets.
>
>Mike Metz
>
>On Thu, 9 Oct 1997, Basil Moore wrote:
>
>>   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
>
>
>
>
>
>


Basil Moore, Department of Economics
Wesleyan University
685-2363