Precautionary motives with multiple instruments

Christoph Heinzel and Richard Peter

No 316521, Working Papers from Institut National de la recherche Agronomique (INRA), Departement Sciences Sociales, Agriculture et Alimentation, Espace et Environnement (SAE2)

Abstract: Using a unified approach, we show how precautionary saving, self-protection and self-insurance are jointly determined by risk preferences and the preference over the timing of uncertainty resolution. We cover higher-order risk effects and examine both risk averters and risk lovers. When decision-makers use several instruments simultaneously to respond to income risk, substitutive interaction effects arise. We quantify precautionary and substitution effects numerically and discuss the role of instrument interaction for the inference of preference parameters from precautionary motives. Instruments can differ substantially in the size of the precautionary motive and in the susceptibility to substitution effects. This affects their suitability for the identification of precautionary preferences.

Keywords: Consumer/Household Economics; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 50 p.
Date: 2021-12-17
New Economics Papers: this item is included in nep-rmg and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://ageconsearch.umn.edu/record/316521/files/W ... O%20N%C2%B021-09.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:inrasl:316521

DOI: 10.22004/ag.econ.316521

Access Statistics for this paper

More papers in Working Papers from Institut National de la recherche Agronomique (INRA), Departement Sciences Sociales, Agriculture et Alimentation, Espace et Environnement (SAE2) Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().