David Cass (January 19, 1937 – April 15, 2008) was a professor of economics at the University of Pennsylvania, mostly known for his contributions to general equilibrium theory.
Cass's doctoral advisor was Hirofumi Uzawa, who also introduced him to Tjalling Koopmans, who at that time was a professor at Yale University.
During his time at Yale University he collaborated with Menahem Yaari and Joseph Stiglitz and worked mostly on overlapping generations models.
Together with Joseph Stiglitz he proved conditions under which it is possible for an investor to achieve an optimal portfolio under the restriction of being able to buy only two mutual funds.
[5] Dave Cass's first major contribution to economics was the characterization of optimal growth trajectories in his thesis work under Hirofumi Uzawa’s supervision at Stanford University.
The literature found expression in the post-war period in the work of Robert Solow at MIT and Hirofumi Uzawa at Stanford, not only as a theory of growth, but also as a tool for understanding the macroeconomy.
Much of the development of the models in the literature was grounded in a set of post-war "stylized facts" that every economics Ph.D. student learns in their first year of graduate study.
Cass's paper was the first to endogenize the consumption-savings decision by deriving an optimal capital accumulation trajectory that maximized the discounted sum of utility payoffs over time.
The tools that Cass used to derive his results were from the then-newly developed field of optimal control in mathematics pioneered by Lev Pontryagin.
The main results in the paper are a demonstration that under now-standard assumptions on preferences and technology, the optimal accumulation sequence exists and is unique.
These papers were published (possibly even completed) while Cass was a research staff member and then an assistant professor at the Cowles Foundation at Yale University (1964–1967).
These included: In the Spear and Wright Macroeconomic Dynamics interview with Cass,[1] he indicates that his work with Manny Yaari at Yale constituted his introduction to Samuelson's consumption loans (now overlapping generations) model, which would come front and center as a major workhorse model in Cass's subsequent work with Karl Shell on sunspot equilibria.
Much of the work leading up to this paper focused on the overlapping generations model: The first actual model of sunspot equilibrium was produced by Shell in an OLG framework with linear utility functions, which appeared in his "Monnai et allocation intertemporelle" in 1977, as part of the Malinvaud lecture series in Paris (now published as a vintage paper in Macroeconomic Dynamics).
The paper demonstrated that in static Arrow-Debreu economies with complete markets, extrinsic uncertainty (where no fundamentals of the model are stochastic) cannot matter to equilibrium allocations.
They then showed that when some agents were restricted in their trades, so that market completeness was violated, sunspots could matter, i.e. there could exist rational expectations equilibria in which equilibrium prices depended on the realization of an extrinsic stochastic process.
And, in a suitable twist of intellectual fate, macroeconomists have recently begun to explore the question of whether sunspot expectations can provide a more plausible source of fluctuations in dynamic equilibrium models than the conventional aggregate productivity disturbances.
Cass’s follow-on work on existence and determinacy of general equilibrium in models with incomplete asset markets spawned another large literature which has come to be known simply as GEI.
These papers include: • "Multiplicity in general financial equilibrium with portfolio constraints," (with Suleyman Basak, Juan Manuel Licari, Anna Pavlova), J. Econ.
[14][15] In 1994, David Cass was instrumental in establishing the Beth Hayes Prize for Graduate Research Accomplishment at the University of Pennsylvania.