Concave Consumption Function under Borrowing
This paper analyzes the optimal consumption behavior of a consumer who faces uninsurable labor income risk and borrowing constraints. In particular, it provides conditions under which the decision rule for consumption is a concave function of existing assets. The current study presents two main OÌˆndings. First, it is shown that the consumption function is concave if the period utility function is drawn from the HARA class and has either strictly positive or zero third derivative. Second, it is shown that the same result can be obtained for certain period utility functions that are not in the HARA class.
|Date of creation:||Aug 2010|
|Date of revision:||Aug 2010|
|Contact details of provider:|| Postal: 4128 Sproul Hall, Riverside, CA 92521-0427|
Phone: (951) 827-3266
Fax: (951) 827-5685
Web page: http://economics.ucr.edu
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ucr:wpaper:201007. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kelvin Mac)
If references are entirely missing, you can add them using this form.