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Precautionary Saving in the Small and in the Large

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  • Kimball, Miles S

Abstract

The theory of precautionary saving is shown to be isomorphic to the Arrow-Pratt theory of risk aversion, making possible the application of a large body of knowledge about risk aversion to precautionary saving--and more generally, to the theory of optimal choice under risk. In particular, a measure of the strength of the precautionary saving motive analogous to the Arrow-Pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the Dreze-Modigliani substitution effect. Copyright 1990 by The Econometric Society.

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  • Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
    • Handle: RePEc:ecm:emetrp:v:58:y:1990:i:1:p:53-73
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    1. Kimball, Miles S & Mankiw, N Gregory, 1989. "Precautionary Saving and the Timing of Taxes," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 863-879, August.
    2. Diamond, Peter A. & Stiglitz, Joseph E., 1974. "Increases in risk and in risk aversion," Journal of Economic Theory, Elsevier, vol. 8(3), pages 337-360, July.
    3. Kimball, Miles S., 1989. "The effect of demand uncertainty on a precommitted monopoly price," Economics Letters, Elsevier, vol. 30(1), pages 1-5.
    4. Stephen P. Zeldes, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(2), pages 275-298.
    5. A. Sandmo, 1970. "The Effect of Uncertainty on Saving Decisions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 37(3), pages 353-360.
    6. Nachman, David C., 1982. "Preservation of "more risk averse" under expectations," Journal of Economic Theory, Elsevier, vol. 28(2), pages 361-368, December.
    7. Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
    8. Pratt, John W & Zeckhauser, Richard J, 1987. "Proper Risk Aversion," Econometrica, Econometric Society, vol. 55(1), pages 143-154, January.
    9. Hayne E. Leland, 1968. "Saving and Uncertainty: The Precautionary Demand for Saving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 82(3), pages 465-473.
    10. Dreze, Jacques H. & Modigliani, Franco, 1972. "Consumption decisions under uncertainty," Journal of Economic Theory, Elsevier, vol. 5(3), pages 308-335, December.
    11. Ross, Stephen A, 1981. "Some Stronger Measures of Risk Aversion in the Small and the Large with Applications," Econometrica, Econometric Society, vol. 49(3), pages 621-638, May.
    12. Miles S. Kimball, 1990. "Precautionary Saving and the Marginal Propensity to Consume," NBER Working Papers 3403, National Bureau of Economic Research, Inc.
    13. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    14. Rulon D. Pope & Jean-Paul Chavas, 1985. "Producer Surplus and Risk," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(Supplemen), pages 853-869.
    15. Kihlstrom, Richard E & Romer, David & Williams, Steve, 1981. "Risk Aversion with Random Initial Wealth," Econometrica, Econometric Society, vol. 49(4), pages 911-920, June.
    16. Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March.
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