How changing prudence and risk aversion affect optimal saving

Arbeitspapier

We show how optimal saving in a two-period model is affected when prudence and risk aversion of the underlying utility function change. Increasing prudence alone will induce higher savings only if, for certain combinations of the interest rate and the pure time discount rate, there is distributional neutrality between the two periods. Otherwise, changes of risk aversion that affect the distribution between the periods must also be taken into account.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 2438

Classification and Topics

• Classification: Wirtschaft ; Consumer Economics: Theory ; Criteria for Decision-Making under Risk and Uncertainty ; Macroeconomics: Consumption; Saving; Wealth ; Project Evaluation; Social Discount Rate
• Subject: Prudence ; risk aversion ; saving ; intergenerational distribution ; Sparen ; Zeitpräferenz ; Erwartungsnutzen ; Risikoaversion ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bauer, Christian ; Buchholz, Wolfgang
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/26483
• Last update: 10.03.2025, 11:43 AM CET