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A note on a new interpretation for the precautionary saving motive

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  • M. Menegatti

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Abstract

This paper proposes a new interpretation for the precautionary saving motive: when future income is uncertain, agents increase saving in order to cause a reduction in the disutility due to uncertainty. Furthermore the paper shows that the usual necessary and sufficient condition for precautionary saving is the condition ensuring this effect to occur.

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Bibliographic Info

Paper provided by Department of Economics, Parma University (Italy) in its series Economics Department Working Papers with number 2006-EP05.

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Length: 8 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:par:dipeco:2006-ep05

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Keywords: Precautionary saving; Risk aversion; Prudence;

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  1. Dreze, Jacques H. & Modigliani, Franco, 1972. "Consumption decisions under uncertainty," Journal of Economic Theory, Elsevier, Elsevier, vol. 5(3), pages 308-335, December.
  2. Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
  3. 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.
  4. Menegatti, Mario, 2001. "On the Conditions for Precautionary Saving," Journal of Economic Theory, Elsevier, Elsevier, vol. 98(1), pages 189-193, May.
  5. Milton Friedman & L. J. Savage, 1948. "The Utility Analysis of Choices Involving Risk," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 56, pages 279.
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