The solution technique follows much the same steps as
the ones in our exposition above, except that a stochastic weight λ emerges in place of the
constant λ that we have here. This stochastic λ becomes a new (endogenous) state variable
in the model, and much of interesting dynamics are due to movements in this state variable
(i.e., endogenous wealth transfers). The final step—solving for λ—is more complex than
in complete markets models, but still feasible. For more on this method and for further
references, see Pavlova and Rigobon (2010)