Optimal Saving with Additive and Multiplicative Background Risk
We study optimal saving when incomes are certain and risk bears on consumption. A key finding is that, with CARA utility and additive uncertain consumption, or CRRA utility and multiplicative consumption, risk-averse individuals do not form precautionary saving as in the standard theory of saving under uncertainty.
|Date of creation:||01 Oct 2004|
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CORE Discussion Papers RP
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- A. Sandmo, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Oxford University Press, vol. 37(3), pages 353-360.
- Christian Gollier, 2004. "The Economics of Risk and Time," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262572249, March.
- Hayne E. Leland, 1968. "Saving and Uncertainty: The Precautionary Demand for Saving," The Quarterly Journal of Economics, Oxford University Press, vol. 82(3), pages 465-473.
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