How changing prudence and risk aversion affect optimal saving

We show how optimal saving in a two-period model is affected when prudence and risk aversion 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.

MoreLess

Year of publication:	2008
Authors:	Bauer, Christian ; Buchholz, Wolfgang
Publisher:	Munich : Center for Economic Studies and ifo Institute (CESifo)
Subject:	Sparen \| Zeitpräferenz \| Erwartungsnutzen \| Risikoaversion \| Theorie \| Prudence \| risk aversion \| saving \| intergenerational distribution

More details

Series:	CESifo Working Paper ; 2438
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	584727666 [GVK] hdl:10419/26483 [Handle]
Classification:	D11 - Consumer Economics: Theory ; D81 - Criteria for Decision-Making under Risk and Uncertainty ; E21 - Consumption; Saving ; H43 - Project Evaluation; Social Discount Rate
Source:	EconStor

Persistent link: https://www.econbiz.de/10010264467