A note on the relevance of prudence in precautionary saving
AbstractThe 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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Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 4 (2007)
Issue (Month): 23 ()
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Find related papers by JEL classification:
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- G0 - Financial Economics - - General
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"Precautionary Motives and Portfolio Decisions,"
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NBER Working Papers
5194, National Bureau of Economic Research, Inc.
- 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.
- Kuehlwein, Michael, 1991. "A test for the presence of precautionary saving," Economics Letters, Elsevier, vol. 37(4), pages 471-475, December.
- Irvine, Ian & Wang, Susheng, 2001. "Saving behavior and wealth accumulation in a pure lifecycle model with income uncertainty," European Economic Review, Elsevier, vol. 45(2), pages 233-258, February.
- 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.
- 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 iiisdp358, IIIS.
- Christian Josef Bauer & Wolfgang Buchholz, 2008. "How Changing Prudence and Risk Aversion Affect Optimal Saving," CESifo Working Paper Series 2438, CESifo Group Munich.
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