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This paper investigates a financial market in which investors with linear meanvariance preferences and multiperiod planning horizons of arbitrary finite length interact. Given heterogeneous subjective beliefs, the temporary equilibrium map determining market clearing prices is calculated explicitly. The classical capital market line result of CAPM theory is extended showing that under homogeneous beliefs investors with identical multiperiod planning horizons hold portfolios with equal proportions of risky assets. The existence of perfect forecasting rules for first and second moment beliefs which generate rational expectations is established.

This paper uncovers a novel mechanism by which bubbles crowd in capital investment. If capital is initially depressed by a binding credit constraint, injecting a bubble triggers a savings glut. Higher returns in a new bubbly equilibrium attract additional investors who expand investment at the extensive margin. We demonstrate that crowding-in through this channel is a robust phenomenon that occurs along the entire time path after bubbles are injected.

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This paper develops a dynamic general equilibrium model with an arbitrary number of different regions to study the economic consequences of climate change under alternative climate policies. Regions differ with respect to their state of economic development, factor endowments, and climate damages and trade on global markets for capital, output, and exhaustible resources. Our main result derives an optimal climate policy consisting of an emissions tax and a transfer policy. The optimal tax can be determined explicitly in our framework and is independent of any weights attached to the interests of different countries. Such weights only determine optimal transfers which distribute tax revenues across countries. We infer that the real political issue is not the tax policy required to reduce global warming but rather how the burden of climate change should be shared via transfer payments between different countries. We propose a simple transfer policy which induces a Pareto improvement relative to the Laissez faire solution.