Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/198773 
Authors: 
Year of Publication: 
2018
Series/Report no.: 
CESifo Working Paper No. 7413
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper studies attention allocation behavior of rationally inattentive consumers who have CRRA preferences, face uninsured capital income risk, and suffer from an information-processing capacity constraint. For given attention devoted to capital income risk, we solve for the optimal consumption-saving choices and show that the expected welfare is increasing with capacity, assuming a relative risk aversion degree larger than unity. Furthermore, we solve for attention choice and find that households would pay more attention to capital income risk if they have (i) lower initial wealth endowment, (ii) lower marginal cost of information, (iii) higher prior volatility of capital return, and (iv) higher degree of patience.
Subjects: 
consumption-saving decision
information-processing constraint
capital-income risk
JEL: 
E13
E21
D81
O16
Document Type: 
Working Paper
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