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Safety first consumption

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  • Sattinger, Michael

Abstract

This paper develops a model of safety first consumption behavior in which the likelihood of survival to the next period depends on current consumption levels. Below a threshold asset level, individuals follow a decumulation path, and above that level they follow an accumulation path. Saving rates then vary discontinuously with asset level, generating a poverty trap and divergence in incomes. An increase in the likelihood of surviving raises aggregate saving. A more equitable distribution of assets can be consistent with greater aggregate savings and growth because of declining marginal propensity to save over some asset intervals.

Suggested Citation

  • Sattinger, Michael, 2013. "Safety first consumption," Journal of Economic Theory, Elsevier, vol. 148(1), pages 306-321.
    • Handle: RePEc:eee:jetheo:v:148:y:2013:i:1:p:306-321
    DOI: 10.1016/j.jet.2012.12.011
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    References listed on IDEAS

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    More about this item

    Keywords

    Safety first; Saving; Uncertainty; Discontinuity; Poverty trap;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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