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Precautionary Saving in the Large under Higher-Order Risk and Recursive Utility

Christoph Heinzel

FOODSECURE Working papers from LEI Wageningen UR

Abstract: The measurement of the strength of the precautionary saving motive under recursive utility (RU) has been conceptually restricted to reactions to the addition of a zero-mean risk to safe future income. This paper provides characterizations of comparative precautionary saving under RU analogous to Ross' (1981) approach to comparative risk aversion for increases in risk, also of higher order, covering the two cases of income risk and a risky saving return. The characterizations involve a comparison based on precautionary premia. I also define preference-intensity measures of the Ross-type and show how they can equivalently represent comparative precautionary saving.

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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