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Risk and Savings: a Taxonomy

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  • Jan Willem Gunning

    (Vrije Universiteit Amsterdam)

Abstract

This discussion paper resulted in a publication in 'Economics Letters' , 2010, 107(1), 39-41. Risk may induce precautionary saving but it can also reduce saving. The theoretical literature recognizes both possibilities, but favors a positive effect (both for developed and developing countries); the empirical literature is divided, reporting (small) positive effects for developed economies and (large) negative effects for developing countries. We show in a 2-period model how the effect of risk on savings depends not only on preferences but also on the type of risk.

Suggested Citation

  • Jan Willem Gunning, 2008. "Risk and Savings: a Taxonomy," Tinbergen Institute Discussion Papers 08-071/2, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20080071
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    References listed on IDEAS

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    6. Besley, Timothy, 1995. "Savings, credit and insurance," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 36, pages 2123-2207, Elsevier.
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    9. Carroll, Christopher D. & Holm, Martin B. & Kimball, Miles S., 2021. "Liquidity constraints and precautionary saving," Journal of Economic Theory, Elsevier, vol. 195(C).
    10. Hayne E. Leland, 1968. "Saving and Uncertainty: The Precautionary Demand for Saving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 82(3), pages 465-473.
    11. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244.
    12. F. H. Hahn, 1970. "Savings and Uncertainty," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 37(1), pages 21-24.
    13. Lusardi, Annamaria, 1998. "On the Importance of the Precautionary Saving Motive," American Economic Review, American Economic Association, vol. 88(2), pages 449-453, May.
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    Cited by:

    1. Berber Kramer, 2016. "When expectations become aspirations: reference-dependent preferences and liquidity constraints," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 61(4), pages 685-721, April.
    2. Vergara, Marcos & Bonilla, Claudio A., 2021. "Precautionary saving in mean-variance models and different sources of risk," Economic Modelling, Elsevier, vol. 98(C), pages 280-289.
    3. Victor Stephane, 2016. "How Do Natural Disasters Affect Saving Behavior?," Working Papers halshs-01409651, HAL.
    4. Alessandro Federici & Pierluigi Montalbano, 2012. "Macroeconomic volatility, consumption behaviour and welfare: A cross-country analysis," Working Paper Series 3612, Department of Economics, University of Sussex Business School.
    5. Claudio Bonilla & Marcos Vergara, 2022. "New results on precautionary saving and nonlinear risks," Journal of Economics, Springer, vol. 136(2), pages 177-189, July.
    6. Vergara, Marcos, 2017. "Precautionary saving: A taxonomy of prudence," Economics Letters, Elsevier, vol. 150(C), pages 18-20.
    7. Mensah, Edouard R. & Filipski, Mateusz J., 2022. "Saving for a rainy day: the impact of natural disasters on savings rates," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322266, Agricultural and Applied Economics Association.
    8. Georgescu, Irina & Kinnunen, Jani, 2020. "The interest rate for saving as a possibilistic risk," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 547(C).
    9. Donatella Baiardi & Marco Magnani & Mario Menegatti, 2020. "The theory of precautionary saving: an overview of recent developments," Review of Economics of the Household, Springer, vol. 18(2), pages 513-542, June.
    10. Martijn Boermans & Daan Willebrands, 2012. "Financial constraints, risk taking and firm performance: Recent evidence from microfinance clients in Tanzania," DNB Working Papers 358, Netherlands Central Bank, Research Department.
    11. Emiliano Magrini & Pierluigi Montalbano, 2012. "Trade openness and vulnerability to poverty: Vietnam in the long-run (1992-2008)," Working Paper Series 3512, Department of Economics, University of Sussex Business School.

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    More about this item

    Keywords

    Theory Consumer Economics; Intertemporal Consumer Choice; Microeconomic Analyses of Economic Development; Economic Development; Financial Markets; Saving and Capital Investment; Corporate Finance and Governance;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • 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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