Precautionary Saving in the Large: nth-Degree Deteriorations in Return Risk
FOODSECURE Working papers from LEI Wageningen UR
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)
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