Risk Aversion and the Size of Desired Debt

Elena Lagomarsino () and Alessandro Spiganti
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Elena Lagomarsino: University of Padua

Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, 2023, vol. 9, issue 1, No 13, 369-396

Abstract: Abstract We investigate the determinants of the level of desired total, secured, and unsecured debt for a panel of Italian households over the period 1989–2016, accounting for both left censoring and sample selection. In particular, we focus on the role of households’ attitudes towards risks, using both their observed behaviour in the financial market and the responses to a hypothetical lottery choice question. We find risk aversion to be a significant determinant of the desired amount of unsecured, secured, and total debt. Relatively more risk adverse households desire more debt, suggesting that Italian households may rely on debt to insure themselves against shocks.

Keywords: Risk aversion; Desired indebtedness; Selection bias; Censoring; Household panel data (search for similar items in EconPapers)
JEL-codes: C23 D12 D14 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s40797-021-00172-1

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