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

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  • Christoph Heinzel

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.

Suggested Citation

  • Christoph Heinzel, 2016. "Precautionary Saving in the Large: nth-Degree Deteriorations in Return Risk," FOODSECURE Working papers 42, LEI Wageningen UR.
    • Handle: RePEc:fsc:fspubl:42
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    References listed on IDEAS

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    Cited by:

    1. Christoph Heinzel, 2016. "Precautionary Saving in the Large under Higher-Order Risk and Recursive Utility," FOODSECURE Working papers 43, LEI Wageningen UR.

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    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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