Safety first consumption

Michael Sattinger

Journal of Economic Theory, 2013, vol. 148, issue 1, 306-321

Abstract: This paper develops a model of safety first consumption behavior in which the likelihood of survival to the next period depends on current consumption levels. Below a threshold asset level, individuals follow a decumulation path, and above that level they follow an accumulation path. Saving rates then vary discontinuously with asset level, generating a poverty trap and divergence in incomes. An increase in the likelihood of surviving raises aggregate saving. A more equitable distribution of assets can be consistent with greater aggregate savings and growth because of declining marginal propensity to save over some asset intervals.

Keywords: Safety first; Saving; Uncertainty; Discontinuity; Poverty trap (search for similar items in EconPapers)
JEL-codes: E21 O12 O16 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:148:y:2013:i:1:p:306-321

DOI: 10.1016/j.jet.2012.12.011

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