Necessity of Hyperbolic Absolute Risk Aversion for the Concavity of Consumption Functions

Alexis Akira Toda

Papers from arXiv.org

Abstract: Carroll and Kimball (1996) have shown that, in the class of utility functions that are strictly increasing, strictly concave, and have nonnegative third derivatives, hyperbolic absolute risk aversion (HARA) is sufficient for the concavity of consumption functions in general consumption-saving problems. This paper shows that HARA is necessary, implying the concavity of consumption is not a robust prediction outside the HARA class.

Date: 2020-09, Revised 2020-11
New Economics Papers: this item is included in nep-upt
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Journal Article: Necessity of hyperbolic absolute risk aversion for the concavity of consumption functions (2021)
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