Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/26433
Authors: 
Eeckhoudt, Louis
Schlesinger, Harris
Year of Publication: 
2008
Series/Report no.: 
CESifo working paper 2388
Abstract: 
How does risk affect saving? Empirical work typically examines the effects of detectible differences in risk within the data. How these differences affect saving in theoretical models depends on the metric one uses for risk. For labor-income risk, second-degree increases in risk require prudence to induce increased saving demand. However, prudence is not necessary for first-degree risk increases and not sufficient for higher-degree risk increases. For increases in interest rate risk, a precautionary effect and a substitution effect need to be compared. This paper provides necessary and sufficient conditions on preferences for an Nth-degree change in risk to increase saving.
Subjects: 
Precautionary saving
prudence
stochastic dominance
temperance
JEL: 
D81
E21
Document Type: 
Working Paper

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