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Precautionary Saving in the Large: nth-Degree Deteriorations in Return Risk

Christoph Heinzel

FOODSECURE Working papers from LEI Wageningen UR

Abstract: Previous research on the measurement of the strength of the precautionary saving motive has concentrated on reactions to an exogenous risk on future income. Complementing the work by Liu (2014), I derive a statement analogous to Ross' (1981)comparative risk aversion for precautionary saving under return-risk increases. The main theorem involves a comparison based on precautionary premia, whose definition deals explicitly with the immediate endogeneity of risk exposure under return risk. I also define preference-intensity measures and state conditions for a representation of the comparative strength of the precautionary-saving motive equivalent to the main theorem. All comparisons apply to a wide range of definitions of risk increases.

JEL-codes: D91 D81 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-upt
Date: 2016-05
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