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Estimation of the Saving Function without Expected Utility

Author

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  • Elie Appelbaum

    () (Department of Economics, York University)

  • Parantap Basu

Abstract

In this paper, we use duality properties to show that the saving function can be derived in a non-expected utility framework, even with fairly general preferences. We propose an econometric framework for estimation of the cross-country aggregate saving function, using a flexible functional form for preferences. A set necessary conditions for the validity of expected utility hypothesis emerges, which we test using cross-country savings data. Expected utility hypothesis is rejected by the data. Estimated elasticities of savings with respect to income and interest rate show considerable heterogeneity across rich and poor countries opening up new theoretical issues.

Suggested Citation

  • Elie Appelbaum & Parantap Basu, 2002. "Estimation of the Saving Function without Expected Utility," Working Papers 2002_13, York University, Department of Economics.
  • Handle: RePEc:yca:wpaper:2002_13
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    File URL: http://dept.econ.yorku.ca/research/workingPapers/working_papers/2002/elie-2002-saving.pdf
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    References listed on IDEAS

    as
    1. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    2. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    3. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
    4. Menezes, C & Geiss, C & Tressler, J, 1980. "Increasing Downside Risk," American Economic Review, American Economic Association, vol. 70(5), pages 921-932, December.
    5. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    6. Elie Appelbaum & Aman Ullah, 1997. "Estimation Of Moments And Production Decisions Under Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 631-637, November.
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    Keywords

    Non-Expected utility; Savings; Moments;

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