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Attitudes towards income risk in the presence of quantity constraints

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  • Schroyen, Fred

    ()
    (Dept. of Economics, Norwegian School of Economics and Business Administration)

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    Abstract

    Considering a consumer with standard preferences, I trace out the consequences for risk aversion and prudence of quantity constraints on markets. I first show how the effect can be decomposed into a price risk effect and an endogenously changing risk aversion/prudence effect. Next, I calibrate locally both effects on relative risk aversion and prudence, using estimates on household demand for durables and labour supply. Finally, I performa global numerical analysis of these effects. I conclude that quantity constraints have counter-intuitive and pronounced non-linear effects on risk attitudes.

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    Bibliographic Info

    Paper provided by Department of Economics, Norwegian School of Economics in its series Discussion Paper Series in Economics with number 7/2011.

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    Length: 39 pages
    Date of creation: 07 Apr 2011
    Date of revision:
    Handle: RePEc:hhs:nhheco:2011_007

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    Related research

    Keywords: Household demand; income risk aversion; prudence; quantity constraints; labour supply.;

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    1. Andrew Postlewaite & Larry Samuelson & Dan Silverman, 2006. "Consumption Commitments and Employment Contracts," Levine's Bibliography 321307000000000145, UCLA Department of Economics.
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