Two Investors, Two Trees, Two Goods

153 Pages Posted: 4 Aug 2021 Last revised: 1 Sep 2022

Date Written: August 31, 2022


I characterize the global solution to the portfolio problem of two heterogeneous investors with general preferences, in a two-tree, two-good environment. Investors have recursive preferences and a bias in consumption towards a preferred good. The framework highlights the role of the allocation of wealth across investors for portfolios, asset prices, and risk sharing, an aspect that had received little emphasis in such a setting. The influence of the allocation of wealth grows especially as markets become imperfectly integrated, and as investor heterogeneity rises -- be it through a larger bias in consumption, the introduction of labor income, or asymmetries in preferences -- to the point where it can match or surpass the impact of fundamentals. The framework lends itself to several applications and extensions, e.g. in international or environmental contexts.

Keywords: Portfolio Choice, Asset Pricing, Wealth Allocation, Heterogeneous Investors, International Financial System, Environmental Finance

JEL Classification: E0, F3, F4, G1, Q5

Suggested Citation

Sauzet, Maxime, Two Investors, Two Trees, Two Goods (August 31, 2022). Boston University Questrom School of Business Research Paper No. 3898027, Available at SSRN: or

Maxime Sauzet (Contact Author)

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States


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