Precautionary saving under many risks

Donatella Baiardi (), Marco Magnani and Mario Menegatti

Journal of Economics, 2014, vol. 113, issue 3, 228 pages

Abstract: This paper studies precautionary saving when many small risks are considered. We first introduce two simultaneous risks: labor income and interest rate risks. We show that, in this context, sufficient conditions for precautionary saving are weaker than in similar models. Moreover, we find that, unlike previous literature, precautionary saving can occur in the case of negative covariance between the two risks and in the case of imprudence. We then extend our analysis to a three-risk framework, where a background risk is included. We derive sufficient conditions for precautionary saving which are interpreted in the light of the previous literature. Copyright Springer-Verlag Wien 2014

Keywords: Precautionary saving; Labor income risk; Interest rate risk; Background risk; Prudence; Partial relative prudence; D81; E21; D11 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:113:y:2014:i:3:p:211-228

DOI: 10.1007/s00712-013-0366-0

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