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Starting from Ramsey's (Economic Journal, 1928) theory of saving and Brock and Mirman's (Journal of Economic Theory, 1972) emphasis on risk, the model presented here combines the risk-return framework of financial analysis with the supply-demand fundamentals of macroeconomics to model society's asset allocation problem.Agents dynamically optimize utility against an array of potential project combinations, all assumed to require financing.The model initially considers real assets and projects and the effects of major technological changes and policy decisions on equilibrium, only later speculating on how financialization (e.g., Torchinsky Landau, Cambridge Journal of Economics, 2022; Goldberg & Torras, Journal of Economic Issues, 2021) affects society's optimal asset allocation.It is the latter consideration that underscores the model's importance.The model posits a capital allocation plane (hereafter the plane) where agents allocate total wealth plus new income between consumption and investment.For any specific combination of return, risk, and optimism/pessimism, there is a unique level of investment that maximizes social utility by smoothing consumption over time.Since consumption equals available capital minus investment, agents implicitly
Goldberg et al. (Tue,) studied this question.