Changes in Risk and the Demand for Saving

Louis Eeckhoudt and Harris Schlesinger

No 2388, CESifo Working Paper Series from CESifo

Abstract: How does risk affect saving? Empirical work typically examines the effects of detectible differences in risk within the data. How these differences affect saving in theoretical models depends on the metric one uses for risk. For labor-income risk, second-degree increases in risk require prudence to induce increased saving demand. However, prudence is not necessary for first-degree risk increases and not sufficient for higher-degree risk increases. For increases in interest rate risk, a precautionary effect and a substitution effect need to be compared. This paper provides necessary and sufficient conditions on preferences for an Nth-degree change in risk to increase saving.

Keywords: precautionary saving; prudence; stochastic dominance; temperance (search for similar items in EconPapers)
JEL-codes: D81 E21 (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (126)

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Related works:
Working Paper: Changes in risk and the demand for saving (2009)
Journal Article: Changes in risk and the demand for saving (2008)
Working Paper: Changes in risk and the demand for saving (2008)
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