How Changing Prudence and Risk Aversion Affect Optimal Saving

We show how optimal saving in a two-period model is affected when prudence and riskaversion of the underlying utility function change. Increasing prudence alone will induce higher savings only if, for certain combinations of the interest rate and the pure time discount rate, there is distributional neutrality between the two periods. Otherwise, changes of risk aversion that affect the distribution between the periods must also be taken into account.

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Year of publication:	2008
Authors:	Bauer, Christian Josef ; Buchholz, Wolfgang
Institutions:	CESifo
Subject:	prudence \| risk aversion \| saving \| intergenerational distribution

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Extent:	application/pdf
Series:	CESifo Working Paper Series.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number 2438
Classification:	D11 - Consumer Economics: Theory ; D81 - Criteria for Decision-Making under Risk and Uncertainty ; E21 - Consumption; Saving ; H43 - Project Evaluation; Social Discount Rate
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005181267