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The Income Effect under Uncertainty: a Slutsky-Like Decomposition with Risk Aversion

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  • Elena Antoniadou
  • Leonard J. Mirman
  • Marc Santugini

Abstract

We study the effect of changing income on optimal decisions in the multidimensional expected utility framework with strongly separable preferences. Using the Kihlstrom and Mirman (1974) (KM) utility representation, we show that the effect of changing income can be decomposed into a modified income effect linked to the classical income effect and an effect representing attitudes to risk, modified by income.

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File URL: http://www.cirpee.org/fileadmin/documents/Cahiers_2013/CIRPEE13-06.pdf
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Bibliographic Info

Paper provided by CIRPEE in its series Cahiers de recherche with number 1306.

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Date of creation: 2013
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Handle: RePEc:lvl:lacicr:1306

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Keywords: Classical Demand Theory; Consumption-Saving Problem; Income; Risk Aversion; Uncertainty;

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  1. Leonard J. Mirman & Marc Santugini, 2011. "On Risk Aversion, Classical Demand Theory, and KM Preferences," Cahiers de recherche, CIRPEE 1132, CIRPEE.
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