Attitudes towards income risk in the presence of quantity constraints

Fred Schroyen ()
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Fred Schroyen: Department of Economics, Norwegian School of Economics, N-5045 Bergen, Norway; Health Economics Bergen, Norway and Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium

No 2011020, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Considering a consumer with standard preferences, I trace out the consequences for risk aversion and prudence of quantity constraints on markets. I first show how the effect can be decomposed into a price risk effect and an endogenously changing risk aversion/prudence effect. Next, I calibrate locally both effects on relative risk aversion and prudence, using estimates on household demand for durables and labour supply. Finally, I perform a global numerical analysis of these effects. I conclude that quantity constraints have counter-intuitive and pronounced non-linear effects on risk attitudes.

Keywords: household demand; income risk aversion; prudence; quantity constraints; labour supply (search for similar items in EconPapers)
JEL-codes: D11 D81 (search for similar items in EconPapers)
Date: 2011-04-01
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2011020

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