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Precautionary saving under many risks

Listed author(s):
  • Donatella Baiardi

    ()

  • Marco Magnani

    ()

  • Mario Menegatti

    ()

This paper studies precautionary saving when many small risks are considered. We first introduce two simultaneous risks: labor income and interest rate risks. We show that, in this context, sufficient conditions for precautionary saving are weaker than in similar models. Moreover, we find that, unlike previous literature, precautionary saving can occur in the case of negative covariance between the two risks and in the case of imprudence. We then extend our analysis to a three-risk framework, where a background risk is included. We derive sufficient conditions for precautionary saving which are interpreted in the light of the previous literature. Copyright Springer-Verlag Wien 2014

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File URL: http://hdl.handle.net/10.1007/s00712-013-0366-0
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Article provided by Springer in its journal Journal of Economics.

Volume (Year): 113 (2014)
Issue (Month): 3 (November)
Pages: 211-228

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Handle: RePEc:kap:jeczfn:v:113:y:2014:i:3:p:211-228
DOI: 10.1007/s00712-013-0366-0
Contact details of provider: Web page: http://www.springer.com

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  1. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
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  3. Eeckhoudt, Louis & Schlesinger, Harris, 2008. "Changes in risk and the demand for saving," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1329-1336, October.
  4. Christophe Courbage & Béatrice Rey, 2007. "Precautionary saving in the presence of other risks," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(2), pages 417-424, August.
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  16. Dreze, Jacques H. & Modigliani, Franco, 1972. "Consumption decisions under uncertainty," Journal of Economic Theory, Elsevier, vol. 5(3), pages 308-335, December.
  17. M. Menegatti, 2007. "A new interpretation for the precautionary saving motive: a note," Journal of Economics, Springer, vol. 92(3), pages 275-280, December.
  18. Li, Jingyuan, 2011. "The demand for a risky asset in the presence of a background risk," Journal of Economic Theory, Elsevier, vol. 146(1), pages 372-391, January.
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