Changes in Risk and the Demand for Saving

By Louis Eeckhoudt, Harris Schlesinger. Social Science Research Network, 2008

222 citations recorded by the source corpus.

How does risk affect saving? Empirical work typically examines the effects of detectible differences in risk within the data. How these differences affect saving in theoretical models depends on the metric one uses for risk. For labor-income risk, second-degree increases in risk require prudence to induce increased saving demand. However, prudence is not necessary for first-degree risk increases and not sufficient for higher-degree risk increases. For increases in interest rate risk, a precautionary effect and a substitution effect need to be compared. This paper provides necessary and sufficient conditions on preferences for an Nth-degree change in risk to increase saving.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/f3280ce6adb322ab33d16c62d91865483b4ce5a3

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

In Economics and Econometrics

Citations in the corpus

Joint measurement of risk aversion, prudence, and temperance (2014, unknown): “Although Kimball (1990) coined the term “prudence,” its implications have been used in assessing a precautionary demand for saving much earlier by Leland (1968) and Sandmo (1970).”
Exploring Higher-Order Risk Effects (2010, background): “In an EU setting, Eeckhoudt and Schlesinger (2008) show that temperance is both necessary and sufficient for an increase in the downside risk of future labor income to always increase the level of precautionary saving.”
Higher Order Risk Attitudes, Demographics, and Financial Decisions (2011, background): “We and temperance, in both the student and the demographically representative sample.”
Risk aversion and religion (2012, unknown): “His work has analyzed the link between risk aversion levels and behavior in the realms of saving (Eeckhoudt and Schlesinger, 2008), health policy (Bui et al., 2005), valuation of life (Eeckhoudt and Hammitt, 2001), and insurance demand (Eeckhoudt et al., 1997), among others.”
Downside Variance Risk Premium (2015, unknown): “Theoretically, we support our empirical findings with a simple endowment equilibrium asset pricing model, where the representative agent is endowed with Epstein and Zin (1989) preferences, and where the consumption growth process is affected by distinct upside and downside shocks.”