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Working Paper
Wealth in the Utility Function and Consumption Inequality
Wealth in the utility function (WIU) has been increasingly used in macroeconomic modelsand this specification can be justified by a few theories such as Max Weber’s (1904-05, German; 1958) theory on “spirit of capitalism.” We incorporate the WIU into a general equilibriumconsumption-portfolio choice model to study the implications of the WIU for consumption inequality, equilibrium interest rate, and equity premium—an unexplored area in the literature.Our general equilibrium framework features recursive exponential utility, uninsurable labor risks,and multiple assets and can deliver ...