This paper examines how the asset price is determined in the asset market, and how it changes through the modification of market structure, utilizing Lucas (1978) model, which incorporates asset prices. The main motivation in Lucas (1978) was the existence of equilibrium asset price, while the one in this paper is the comparative statics: the variation of asset price, especially when the dividend from the asset becomes riskier. The motivation of this paper is to examine if the standard asset price model can explain the bubble economy with risk averters. Historically, when the bubble emerged in an asset market, there existed the modification of preceding circumstances in many cases: e.g. in the Dutch tulip bubble. Thus, it examines if the asset price rises in the case of increased uncertainty when the investors are risk-averters, utilizing simulation approach. When the expected value of dividend rises the asset price may rise. However, when the expected value remains the same and the standard deviation (variance) increases, it might be expected that the investors' demand for asset decline, leading to the decline of asset price. When the investors plan to maximize the utility level under the fixed income, this expectation might be supported. In fact, in the general equilibrium approach of searching for equilibrium asset prices, the investor's income increases when the asset price rises: the well-known argument of reservation demand, such as in the textbook explanation of the labor supply and saving. Due to the income effect the expectation might prove to be wrong. In Fukiharu (1994), which follows Lucas' formulation of the pure exchange general equilibrium model, it was shown that if the relative risk aversion of the investor's utility function does not exceed 1 and it is not decreasing, the equilibrium asset price declines when the uncertainty increases in the above sense. The assumption of power function satisfies the one in this result. In this paper, following Lucas' formulation, we examine if there is any utility function, which provides the counter example in which the asset price rises in spite of the increased uncertainty regarding the prospect for dividend receipt. Starting from the risk-averter's two period maximization problem with certain dividends for the two periods, it is shown that if the uncertainty is introduced for the first period, the exponential utility function provides the counter example mentioned above. It is shown, however, that when the uncertainty is introduced for the two periods, the exponential utility function does not provide the case. Thus, when the uncertainty is not so strong, the income effect may raise the asset price in spite of the increased uncertainty. It is shown in this case that the asset is a Giffen good when the asset price is already high, as shown in the following figure, where p is the asset price and z(1)-1 is the excess demand for the asset. [GRAPHICS] . Thus, this paper points out a theoretical possibility that even if the investors are risk-averters the bubble economy may emerge. In examining this problem, it is also found that quadratic utility function may explain the collapse of bubble economy
