Arbeitspapier
The Optimal Amount of Attention to Capital Income Risk
This paper studies attention allocation behavior of rationally inattentive consumers who have CRRA preferences, face uninsured capital income risk, and suffer from an information-processing capacity constraint. For given attention devoted to capital income risk, we solve for the optimal consumption-saving choices and show that the expected welfare is increasing with capacity, assuming a relative risk aversion degree larger than unity. Furthermore, we solve for attention choice and find that households would pay more attention to capital income risk if they have (i) lower initial wealth endowment, (ii) lower marginal cost of information, (iii) higher prior volatility of capital return, and (iv) higher degree of patience.
- Language
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Englisch
- Bibliographic citation
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Series: CESifo Working Paper ; No. 7413
- Classification
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Wirtschaft
General Aggregative Models: Neoclassical
Macroeconomics: Consumption; Saving; Wealth
Criteria for Decision-Making under Risk and Uncertainty
Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- Subject
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consumption-saving decision
information-processing constraint
capital-income risk
- Event
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Geistige Schöpfung
- (who)
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Yin, Penghui
- Event
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Veröffentlichung
- (who)
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Center for Economic Studies and ifo Institute (CESifo)
- (where)
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Munich
- (when)
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2018
- Handle
- Last update
-
10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Yin, Penghui
- Center for Economic Studies and ifo Institute (CESifo)
Time of origin
- 2018
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