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Precautionary Wealth Accumulation

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Abstract

When does an individual's expected wealth accumulation profile increase as earnings risk increases? This paper answers this question for multi-period models where earnings shocks are independent over time. Sufficient conditions are stated in terms of properties of a decision rule for savings and, alternatively, in terms of properties of preferences.

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Paper provided by Georgetown University, Department of Economics in its series Working Papers with number gueconwpa~03-03-09.

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Date of creation: 09 Mar 2003
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Handle: RePEc:geo:guwopa:gueconwpa~03-03-09

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Postal: Georgetown University Department of Economics Washington, DC 20057-1036
Phone: 202-687-6074
Fax: 202-687-6102
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Web page: http://econ.georgetown.edu/

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Postal: Roger Lagunoff Professor of Economics Georgetown University Department of Economics Washington, DC 20057-1036
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Web: http://econ.georgetown.edu/

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  1. Huggett, Mark & Ospina, Sandra, 2001. "Aggregate precautionary savings: when is the third derivative irrelevant?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 48(2), pages 373-396, October.
  2. Stephen Zeldes, . "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 20-86, Wharton School Rodney L. White Center for Financial Research.
  3. Miller, Bruce L., 1976. "The effect on optimal consumption of increased uncertainty in labor income in the multiperiod case," Journal of Economic Theory, Elsevier, vol. 13(1), pages 154-167, August.
  4. Sandmo, Agnar, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 37(3), pages 353-60, July.
  5. Caballero, Ricardo J, 1991. "Earnings Uncertainty and Aggregate Wealth Accumulation," American Economic Review, American Economic Association, vol. 81(4), pages 859-71, September.
  6. DREZE, Jacques H. & MODIGLIANI, Franco, . "Cosumption decisions under uncertainty," CORE Discussion Papers RP -119, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Huggett, Mark & Vidon, Edouard, 2002. "Precautionary wealth accumulation: a positive third derivative is not enough," Economics Letters, Elsevier, vol. 76(3), pages 323-329, August.
  8. Carroll, Christopher D & Kimball, Miles S, 1996. "On the Concavity of the Consumption Function," Econometrica, Econometric Society, Econometric Society, vol. 64(4), pages 981-92, July.
  9. Huggett, Mark, 1996. "Wealth distribution in life-cycle economies," Journal of Monetary Economics, Elsevier, Elsevier, vol. 38(3), pages 469-494, December.
  10. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Discussion Papers 96-01, University of Copenhagen. Department of Economics.
  11. Mark Huggett, 2003. "When are Comparative Dynamics Monotone?," Working Papers, Georgetown University, Department of Economics gueconwpa~03-03-12, Georgetown University, Department of Economics.
  12. Christopher D. Carroll & Miles S. Kimball, 2001. "Liquidity Constraints and Precautionary Saving," NBER Working Papers 8496, National Bureau of Economic Research, Inc.
  13. Schechtman, Jack, 1976. "An income fluctuation problem," Journal of Economic Theory, Elsevier, vol. 12(2), pages 218-241, April.
  14. Van Der Ploeg, F., 1989. "Risk Aversion, Intertemporal Substitution And Consumption: The Cara-Lq Problem," Papers, Tilburg - Center for Economic Research 8953, Tilburg - Center for Economic Research.
  15. Haim Mendelson & Yakov Amihud, 1982. "Optimal Consumption Policy under Uncertain Income," Management Science, INFORMS, INFORMS, vol. 28(6), pages 683-697, June.
  16. Weil, Philippe, 1993. "Precautionary Savings and the Permanent Income Hypothesis," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 60(2), pages 367-83, April.
  17. Sibley, David S., 1975. "Permanent and transitory income effects in a model of optimal consumption with wage income uncertainty," Journal of Economic Theory, Elsevier, vol. 11(1), pages 68-82, August.
  18. Aiyagari, S Rao, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(3), pages 659-84, August.
  19. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
  20. Jonathan S. Skinner, 1987. "Risky Income, Life Cycle Consumption, and Precautionary Savings," NBER Working Papers 2336, National Bureau of Economic Research, Inc.
  21. Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
  22. Mirman, Leonard J, 1971. "Uncertainty and Optimal Consumption Decisions," Econometrica, Econometric Society, Econometric Society, vol. 39(1), pages 179-85, January.
  23. 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.
  24. Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March.
  25. Miller, Bruce L, 1974. "Optimal Consumption with a Stochastic Income Stream," Econometrica, Econometric Society, Econometric Society, vol. 42(2), pages 253-66, March.
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Citations

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Cited by:
  1. Christopher D. Carroll & Miles S. Kimball, 2006. "Precautionary Saving and Precautionary Wealth," Economics Working Paper Archive 530, The Johns Hopkins University,Department of Economics.
  2. Daron Acemoglu & Martin Kaae Jensen, 2012. "Robust Comparative Statics in Large Dynamic Economies," NBER Working Papers 18178, National Bureau of Economic Research, Inc.
  3. Luc Arrondel & Hector Calvo Pardo, 2008. "Les Français sont-ils prudents ? Patrimoine et risque sur les revenus des ménages," PSE Working Papers halshs-00585994, HAL.
  4. Richard M. H. Suen, 2011. "Concave Consumption Function and Precautionary Wealth Accumulation," Working papers 2011-23, University of Connecticut, Department of Economics.
  5. Koulovatianos, Christos & Mirman, Leonard J. & Santugini, Marc, 2009. "Optimal growth and uncertainty: Learning," Journal of Economic Theory, Elsevier, vol. 144(1), pages 280-295, January.
  6. Huggett, Mark & Vidon, Edouard, 2002. "Precautionary wealth accumulation: a positive third derivative is not enough," Economics Letters, Elsevier, vol. 76(3), pages 323-329, August.
  7. Michael Sattinger, 2010. "The Markov Consumption Problem," Discussion Papers 10-03, University at Albany, SUNY, Department of Economics.
  8. Gilles Joseph & Thomas Weitzenblum, 2003. "Optimal Unemployment Insurance: Transitional Dynamics vs. Steady State," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 869-884, October.
  9. Morissette, Rene & Ostrovsky, Yuri, 2005. "The Instability of Family Earnings and Family Income in Canada, 1986 to 1991 and 1996 to 2001," Analytical Studies Branch Research Paper Series 2005265e, Statistics Canada, Analytical Studies Branch.
  10. Agustin Roitman, 2011. "Precautionary Savings in a Small Open Economy Revisited," IMF Working Papers 11/253, International Monetary Fund.
  11. Martin Kaae Jensen, 2012. "Distributional Comparative Statics," Discussion Papers, Department of Economics, University of Birmingham 12-08, Department of Economics, University of Birmingham.
  12. Scott Fulford, 2012. "The precaution of the rich and poor," Boston College Working Papers in Economics 814, Boston College Department of Economics.
  13. repec:hal:wpaper:halshs-00585994 is not listed on IDEAS

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