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Risk Aversion and the Size of Desired Debt

Author

Listed:
  • Elena Lagomarsino

    (University of Padua)

  • Alessandro Spiganti

    (Ca’ Foscari University of Venice)

Abstract

We investigate the determinants of the level of desired total, secured, and unsecured debt for a panel of Italian households over the period 1989–2016, accounting for both left censoring and sample selection. In particular, we focus on the role of households’ attitudes towards risks, using both their observed behaviour in the financial market and the responses to a hypothetical lottery choice question. We find risk aversion to be a significant determinant of the desired amount of unsecured, secured, and total debt. Relatively more risk adverse households desire more debt, suggesting that Italian households may rely on debt to insure themselves against shocks.

Suggested Citation

  • Elena Lagomarsino & Alessandro Spiganti, 2023. "Risk Aversion and the Size of Desired Debt," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 9(1), pages 369-396, March.
    • Handle: RePEc:spr:italej:v:9:y:2023:i:1:d:10.1007_s40797-021-00172-1
    DOI: 10.1007/s40797-021-00172-1
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    More about this item

    Keywords

    Risk aversion; Desired indebtedness; Selection bias; Censoring; Household panel data;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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