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Precautionary Wealth Accumulation: A Positive Third Derivative is not Enough

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Mark Huggett () (Department of Economics, Georgetown University)

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Abstract

It is commonly conjectured that expected wealth accumulation increases when earnings risk increases as long as the utility function in each period is increasing, concave and has a positive third derivative. We present a counter example which highlights the importance of the convexity of the savings function.

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Paper provided by Georgetown University, Department of Economics in its series Working Papers with number gueconwpa~03-03-11.

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Handle: RePEc:geo:guwopa:gueconwpa~03-03-11

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Postal: Georgetown University Department of Economics Washington, DC 20057-1036
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Postal: Marcia Suss Administrative Officer Georgetown University Department of Economics Washington, DC 20057-1036
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Find related papers by JEL classification:
D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
D90 - Microeconomics - - Intertemporal Choice and Growth - - - General
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Discussion Papers 96-01, University of Copenhagen. Department of Economics.
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  2. 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. [Downloadable!] (restricted)
  3. Sandmo, Agnar, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Blackwell Publishing, vol. 37(3), pages 353-60, July. [Downloadable!] (restricted)
  4. Mark Huggett, 2001. "Precautionary Wealth Accumulation," Working Papers gueconwpa~03-03-09, Georgetown University, Department of Economics. [Downloadable!]
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  5. 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. [Downloadable!] (restricted)
  6. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January. [Downloadable!] (restricted)
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  7. Weil, Philippe, 1993. "Precautionary Savings and the Permanent Income Hypothesis," Review of Economic Studies, Blackwell Publishing, vol. 60(2), pages 367-83, April. [Downloadable!] (restricted)
  8. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September. [Downloadable!] (restricted)
  9. Schechtman, Jack, 1976. "An income fluctuation problem," Journal of Economic Theory, Elsevier, vol. 12(2), pages 218-241, April. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Mark Huggett, 2001. "Precautionary Wealth Accumulation," Working Papers gueconwpa~03-03-09, Georgetown University, Department of Economics. [Downloadable!]
    Other versions:
  2. Christian Ghiglino, 2003. "Wealth inequality and dynamic stability," Diskussionsschriften dp0310, Universitaet Bern, Departement Volkswirtschaft. [Downloadable!]
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