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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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  • Mark Huggett, 2003. "Precautionary Wealth Accumulation," Working Papers gueconwpa~03-03-09, Georgetown University, Department of Economics.
    • Handle: RePEc:geo:guwopa:gueconwpa~03-03-09
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    Cited by:

    1. 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.
    2. Martin Kaae Jensen, 2018. "Distributional Comparative Statics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(1), pages 581-610.
    3. Fulford, Scott L., 2015. "The surprisingly low importance of income uncertainty for precaution," European Economic Review, Elsevier, vol. 79(C), pages 151-171.
    4. Scott Fulford, 2012. "The precaution of the rich and poor," Boston College Working Papers in Economics 814, Boston College Department of Economics.
    5. Suen, Richard M. H., 2011. "Concave consumption function and precautionary wealth accumulation," MPRA Paper 34774, University Library of Munich, Germany.
    6. Scott L. Fulford, 2020. "Demand for emergency savings is higher for low-income households, but so is the cost of shocks," Empirical Economics, Springer, vol. 58(6), pages 3007-3033, June.
    7. Ghiglino, Christian, 2005. "Wealth inequality and dynamic stability," Journal of Economic Theory, Elsevier, vol. 124(1), pages 106-115, September.
    8. Bar Light, 2021. "Stochastic Comparative Statics in Markov Decision Processes," Mathematics of Operations Research, INFORMS, vol. 46(2), pages 797-810, May.
    9. 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.
    10. Daron Acemoglu & Martin Kaae Jensen, 2015. "Robust Comparative Statics in Large Dynamic Economies," Journal of Political Economy, University of Chicago Press, vol. 123(3), pages 587-640.
    11. 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.
    12. Sattinger, Michael, 2011. "The Markov consumption problem," Journal of Mathematical Economics, Elsevier, vol. 47(4-5), pages 409-416.
    13. 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.
    14. Carroll, Christopher D. & Kimball, Miles S., 2006. "Precautionary Saving and Precautionary Wealth," CFS Working Paper Series 2006/02, Center for Financial Studies (CFS).
    15. 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.
    16. Broer, Tobias, 2014. "Domestic or global imbalances? Rising income risk and the fall in the US current account," Journal of Monetary Economics, Elsevier, vol. 64(C), pages 47-67.
    17. Huggett, Mark & Ospina, Sandra, 2001. "Aggregate precautionary savings: when is the third derivative irrelevant?," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 373-396, October.
    18. Wills, Samuel, 2018. "Leave the volatility fund alone: Principles for managing oil wealth," Journal of Macroeconomics, Elsevier, vol. 55(C), pages 332-352.
    19. Bar Light, 2018. "Precautionary Saving in a Markovian Earnings Environment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 29, pages 138-147, July.
    20. Agustin Roitman, 2011. "Precautionary Savings in a Small Open Economy Revisited," IMF Working Papers 2011/253, International Monetary Fund.

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    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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