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A note on the relevance of prudence in precautionary saving

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  • Luigi Ventura

    ()
    (Department of Economics, University of Rome "La Sapienza")

Abstract

The aim of this note is to suggest that prudence, i.e. convexity of marginal utility, can only explain a small share of precautionary savings, which we may define as savings generated by variance in income. Therefore, if we are willing to admit that precautionary savings constitute a sizable share of total savings, other factors should be called for. We present a few examples showing that risk aversion might constitute one such factor.

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File URL: http://www.accessecon.com/pubs/EB/2007/Volume4/EB-07D80007A.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 4 (2007)
Issue (Month): 23 ()
Pages: 1-11

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Handle: RePEc:ebl:ecbull:eb-07d80007

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  1. Christopher D. Carroll & Andrew A. Samwick, 1995. "How Important is Precautionary Saving?," NBER Working Papers 5194, National Bureau of Economic Research, Inc.
  2. Adam J. Grossberg, 1991. "Personal Saving under Income Uncertainty: A Test of the Intertemporal Substitution Hypothesis," Eastern Economic Journal, Eastern Economic Association, vol. 17(2), pages 203-210, Apr-Jun.
  3. Hochgürtel, S., 1997. "Precautionary Motives and Portfolio Decisions," Discussion Paper, Tilburg University, Center for Economic Research 1997-55, Tilburg University, Center for Economic Research.
  4. Kuehlwein, Michael, 1991. "A test for the presence of precautionary saving," Economics Letters, Elsevier, Elsevier, vol. 37(4), pages 471-475, December.
  5. Irvine, Ian & Wang, Susheng, 2001. "Saving behavior and wealth accumulation in a pure lifecycle model with income uncertainty," European Economic Review, Elsevier, Elsevier, vol. 45(2), pages 233-258, February.
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Cited by:
  1. Christian Josef Bauer & Wolfgang Buchholz, 2008. "How Changing Prudence and Risk Aversion Affect Optimal Saving," CESifo Working Paper Series 2438, CESifo Group Munich.
  2. Carol Newman & Fiona Wainwright, 2011. "Income Shocks and Household Risk-Coping Strategies: Evidence from Rural Vietnam," The Institute for International Integration Studies Discussion Paper Series, IIIS iiisdp358, IIIS.
  3. Ventura, Luigi, 2008. "Risk sharing opportunities and macroeconomic factors in Latin American and Caribbean countries : A consumption insurance assessment," Policy Research Working Paper Series 4490, The World Bank.

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