The Income Effect under Uncertainty: a Slutsky-Like Decomposition with Risk Aversion

We study the effect of changing income on optimal decisions in the multidimensional expected utility framework with strongly separable preferences. Using the Kihlstrom and Mirman (1974) (KM) utility representation, we show that the effect of changing income can be decomposed into a modified income effect linked to the classical income effect and an effect representing attitudes to risk, modified by income.

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Year of publication:	2013
Authors:	Antoniadou, Elena ; Mirman, Leonard J. ; Santugini, Marc
Institutions:	Centre Interuniversitaire sur le Risque, les Politiques Économiques et l'Emploi (CIRPÉE)
Subject:	Classical Demand Theory \| Consumption-Saving Problem \| Income \| Risk Aversion \| Uncertainty

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Extent:	application/pdf
Series:	Cahiers de recherche.
Type of publication:	Book / Working Paper
Classification:	D01 - Microeconomic Behavior: Underlying Principles ; D81 - Criteria for Decision-Making under Risk and Uncertainty ; D91 - Intertemporal Consumer Choice; Life Cycle Models and Saving
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010728904