Precautionary Saving in the Small and in the Large

Miles Kimball

No 2848, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The theory of precautionary saving is shown in this paper to be isomorphic to the Arrow-Pratt theory of risk aversion, making possible the application of a large body of knowledge about risk aversion to precautionary saving, and more generally, to the theory of optimal choice under risk. In particular, a measure of the strength of precautionary saving motive analogous to the Arrow-Pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving, and to give a new interpretation of the Oreze-Modigliani substitution effect.

Date: 1989-02
Note: ME
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Citations: View citations in EconPapers (34)

Published as Econometrica, vo. 58, no. 1, January 1990.

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