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Optimal Choices under Uncertainty: The Case of Two-Argument Utility Functions

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  • Dardanoni, Valentino

Abstract

This paper presents a unified treatment for the analysis of two-argument utility functions with a random budget constraint. The way in which changes in both additive and multiplicative risk affect optimal choices has been analyzed prov iding intuitive economic explanations to third order magnitudes which usually appear in this kind of analysis. Two examples are given in t erms of optimal savings and labor supply under uncertainty. Finally, an application to taxation under uncertainty is given, where both the effects of increased tax progressivity and the rules for efficient t axation are analyzed. Copyright 1988 by Royal Economic Society.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 98 (1988)
Issue (Month): 391 (June)
Pages: 429-50

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Handle: RePEc:ecj:econjl:v:98:y:1988:i:391:p:429-50

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Cited by:
  1. Jianli Wang & Pu Gong, 2013. "Labor supply with stochastic wage rate and non-labor income uncertainty," Journal of Economics, Springer, vol. 109(1), pages 41-55, May.
  2. Broll, Udo & Mallick, Rajiv & Wong, Kit Pong, 2001. "International trade and hedging in economies in transition," Economic Systems, Elsevier, vol. 25(2), pages 149-159, June.
  3. Picone, Gabriel & Uribe, Martin & Mark Wilson, R., 1998. "The effect of uncertainty on the demand for medical care, health capital and wealth," Journal of Health Economics, Elsevier, vol. 17(2), pages 171-185, April.
  4. John Quiggin, 2001. "Production under Uncertainty and Choice under Uncertainty in the Emergence of Generalized Expected Utility Theory," Theory and Decision, Springer, vol. 51(2), pages 125-144, December.
  5. Thomas Aronsson & Sören Blomquist, 2003. "On Environmental Taxation under Uncertain Environmental Damage," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 24(2), pages 183-196, February.
  6. Turnbull, Geoffrey K., 2008. "Squatting, eviction and development," Regional Science and Urban Economics, Elsevier, vol. 38(1), pages 1-15, January.
  7. Quiggin, John C., 1991. "Contradictory Predictions On Supply Response Under Stabilization: A Reconciliation," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 35(03), December.
  8. Menezes, Carmen F. & Henry Wang, X. & Bigelow, John P., 2005. "Duality and consumption decisions under income and price risk," Journal of Mathematical Economics, Elsevier, vol. 41(3), pages 387-405, April.
  9. Louis Eeckhoudt & Béatrice Rey & Harris Schlesinger, 2006. "A Good Sign for Multivariate Risk Taking," CESifo Working Paper Series 1796, CESifo Group Munich.
  10. Nocetti, Diego & Napp, Clotilde & Jouini, Elyès, 2012. "Economic Consequences of Nth-Degree Risk Increases and Nth-Degree Risk Attitudes," Economics Papers from University Paris Dauphine 123456789/11094, Paris Dauphine University.
  11. Dominique Henriet & Patrick A. Pintus & Alain Trannoy, 2014. "Is the Flat Tax Optimal under Income Risk?," Working Papers halshs-00999222, HAL.
  12. Robledo, Julio R., 1999. "Strategic risk taking when there is a public good to be provided privately," Journal of Public Economics, Elsevier, vol. 71(3), pages 403-414, March.
  13. Turnbull, Geoffrey K., 1998. "The Overspending and Flypaper Effects of Fiscal Illusion: Theory and Empirical Evidence," Journal of Urban Economics, Elsevier, vol. 44(1), pages 1-26, July.
  14. O'Donnell, Owen, 1995. "Labour supply and saving decisions with uncertainty over sickness," Journal of Health Economics, Elsevier, vol. 14(4), pages 491-504, October.
  15. Liljas, Bengt, 1998. "The demand for health with uncertainty and insurance," Journal of Health Economics, Elsevier, vol. 17(2), pages 153-170, April.

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