Precautionary saving in the presence of other risks: a comment

Courbage and Rey (Econ Theory 32:417–424 2007) analyse precautionary saving in the presence of a background risk under specific sets of assumptions on the form of income risk and background risk. Three cases are examined: the case of independent risks, the case of Bernoulli-distributed random variables and the case of risk first-degree stochastic. For each of these cases Courbage and Rey compute the specific sets of conditions related to precautionary saving. This comment shows that some of their conclusions are partially incorrect.      

Precautionary saving in the presence of other risks

Does the sign of the third derivative of the utility function with respect to wealth still govern precautionary saving motives in the presence of a background risk? This article shows that some other properties of the utility function have also to be considered depending on the serial correlation existing between the background risk and the future income risk.     

Wage arrears uncertainty and precautionary saving in Russia1

Wage arrears are widespread in Russia, and are one of the main causes of uncertainty in the labour market. In this paper, we use the Russian Longitudinal Monitoring Survey over the period 1994–98 to construct a new and improved measure of household income risk, based on the uncertainty due to wage arrears. We then use this measure of uncertainty to test the precautionary saving hypothesis, according to which households save to self‐insure against risk. We find significant evidence of additional saving by those households whose head is more likely to suffer from wage arrears one year hence. This suggests the existence of a strong precautionary saving motive.     

Background risk and the demand for state-contingent claims

Summary. We consider the demand for state-contingent claims, in the presence of an independent zero-mean, non-hedgeable background risk. An agent is defined to be generalized risk averse if he/she chooses a demand function for contingent claims with a smaller slope everywhere, given a simple increase in background risk. We show that the conditions for standard risk aversion, that is positive, declining absolute risk aversion and prudence, are necessary and sufficient for generalized risk aversion.Received: 13 February 2002, Revised: 10 February 2003, JEL Classification Numbers: D52, D81, G11. Correspondence to: Guenter FrankeWe are grateful to Louis Eeckhoudt, Christian Gollier, Harris Schlesinger and an unknown referee for valuable comments.     

Optimal Commodity Taxation in the Presence of Tourists

Abstract

This paper explores empirically whether Japanese consumers became more prudent in the second half of the 1990s, a decade in which Japan registered historically low economic growth. Employing the methodology developed by Dynan (1993), this study uses micro-level data from the Family Savings Survey and the Family Income and Expenditure Survey to estimate the coefficient of prudence for Japanese households in the second half of the 1990s. The estimates reveal that the coefficient of prudence is positive and statistically significant in the 1998–1999 period. The obtained value for the coefficient of prudence is four, which is much higher than that estimated for US households (not significantly different from zero) or UK households (around 2). The estimated coefficient for young households is higher still, which is consistent with simulation studies conducted by Gourinchas & Parker (2002) showing that precaution is the most important saving motive for younger households.     

Precautionary saving under liquidity constraints: Evidence from rural Pakistan

This paper investigates precautionary saving under liquidity constraints in Pakistan using household panel data. In particular, while it estimates Kimball's [Kimball, M.S. Precautionary saving in the small and in the large. Econometrica 1990; 58; 53–73.] prudence parameter based on a framework that is similar to Dynan [Dynan, K.E. How prudent are consumers? Journal of Political Economy 1993; 101; 1104–1113.], this study deviates from the framework by explicitly considering liquidity constraints, as in Zeldes [Zeldes, S.P. Consumption and liquidity constraints: an empirical investigation. Journal of Political Economy 1989; 97; 305–346.]. By doing so, this paper attempts to differentiate the standard precautionary saving caused by uncertainty from that caused by liquidity constraints. Furthermore, endogenous liquidity constraints are used in order to resolve issues of selection biases. We find substantial evidence of the presence of precautionary saving in Pakistan. More specifically, the estimated prudence is significantly higher for liquidity-constrained households as compared with unconstrained ones. The finding suggests that the precautionary saving motives appear stronger when households see that their access to credit markets is limited.     

Business cycle fluctuations and household saving in OECD countries: A panel data analysis

We investigate the cyclicality of the household saving to household disposable income ratio for a panel of 16 OECD countries over the period 1969–2012. We find evidence that the household saving ratio is countercyclical. We empirically investigate whether the determinants of saving suggested by a standard buffer stock model of saving can explain this finding. The three main determinants of household saving implied by such a model (i.e., unemployment risk, household wealth and credit constraints) have a significant impact on the household saving ratio while their combined effect completely offsets its countercyclicality. The saving regression results are robust to potential endogeneity of the regressors, to making use of a reduced sample size that leaves out the period of the Great Recession, and to the one-by-one addition of variables suggested by alternative theories that also predict a countercyclical saving ratio.     

Liquidity constraints, precautionary saving and aggregate consumption: an international comparison

This paper has three objectives. First, to expand Hall's [J. Polit. Econ. 86 (1978) 971] rational expectations permanent income/life cycle hypotheses (REPIH/RELCH) representative agent model to allow for current income consumers, the durable component of total consumer expenditures and for intertemporal substitution, which are often cited as the main reasons for the rejection of Hall's model. Second, to apply this modified model to 20 OECD countries over the post-World War II period. The GMM estimation method is employed. Third, to examine the relative influence of liquidity constraints and precautionary saving on the cross-country variation in the proportion of current income consumers, using cross-country regressions and a non-linear model of panel data. The presence of current income consumers, which is primarily due to liquidity constraints and to a lesser extent to precautionary saving, is the major factor for the rejection of the basic REPIH/RELCH model in all OECD countries.     

Precautionary saving in the presence of labor income and interest rate risks

This paper deals with the classic issue of precautionary saving in a standard two-period setting. The literature has identified conditions on the individual??s utility function under which either labor income uncertainty or interest-rate uncertainty can lead to positive precautionary saving. We allow for both sources of uncertainty simultaneously. We extend the Jensen inequality from one risk to two positively quadrant dependent risks. The main result of the paper is that ??positive quadrant dependent?? uncertainty raises saving if and only if ??partial relative prudence?? is larger than 2. We characterize the condition that ??partial relative prudence?? exceeds 2 via preferences over simple binary lotteries, in the style of Eeckhoudt and Schlesinger (Am Econ Rev 96:280?C289, 2006).     

A new interpretation for the precautionary saving motive: a note

This paper proposes a new interpretation for the precautionary saving motive: when future income is uncertain, agents increase saving in order to cause a reduction in the disutility due to uncertainty. Furthermore, the paper shows that the usual necessary and sufficient condition for precautionary saving is the condition ensuring this effect to occur and gives new insights into the relationship between risk aversion indexes and precautionary saving.      

On the willingness to pay to reduce risks of small losses

While willingness to pay is a common concept to measure the benefit gained from a reduction in the probability of loss, it is still questionable how it is linked to risk aversion and risk elimination behaviors, and how it is affected by the presence of an exogenous source of risk. By focusing only on risks of small losses, this article sheds light on these three issues and provides new results on the determinants of the willingness to pay.      

Self-insurance in a life-cycle model of labour supply and savings

This paper analyses the incentives to work and to save over the life cycle in the presence of incomplete markets. In a calibrated, partial equilibrium model, flexibility in hours worked changes asset age-profiles: borrowing when young is greater and saving when middle-aged is greater than when labour supply is fixed. Uncertainty causes individuals to work longer hours and to consume less when young. With flexibility over hours, accumulating precautionary assets incurs less of a utility cost and so the level of saving is greater. Further, allowing for flexibility and uncertainty means simulated hours of work and consumption more closely match the age profiles in the data.     

The impact of the correlation between health expenditure and survival probability on the demand for insurance

This paper studies the effects of health shocks on the demand for health insurance and annuities, along with precautionary saving in a dynamic life-cycle model. I argue that when the health shock can simultaneously increase health expenses and reduce longevity, rational agents would neither fully insure their uncertain health expenses nor fully annuitize their wealth because the correlation between health expenses and longevity provides a self-insurance channel for both uncertainties. That is, when the agent is hit by a health shock (which simultaneously increases health expenses and reduces longevity), she can use the resources originally saved for consumption in the reduced period of life to pay for the increased health expenses. Since the two uncertainties partially offset each other, the precautionary saving generated in the model should be smaller than in a standard model without the correlation between health expenses and longevity. In a quantitative life-cycle model calibrated using the Medical Expenditure Panel Survey dataset, I find that the health expenses are highly correlated with the survival probabilities, and this correlation significantly reduces the demand for actuarially fair health insurance, while its impact on the demand for annuities and precautionary saving is relatively small.     

Bivariate risk attitudes,informal care and saving

The article examines choices of saving and caregiving for informal caregivers who will face uncertainty in health status of elderly parents. The caregivers have a general form of utility with two attributes: wealth and parental health. Informal care will substitute for future need of formal care when parents are in good health. The article first studies the optimal levels of saving and of caregiving and the link between them. Comparative statics results depending on partial risk aversion or correlation attitude are then presented. These results concern the effects of changes in the opportunity cost of caregiving, the share of expected bequest, the health status and the interest rate. The analysis is also extended to investigate the role of cross-prudence/imprudence in wealth when a background health risk is introduced.     

经济转轨、不确定性与城镇居民消费行为

本文利用中国社会科学院经济研究所收入分配课题组 1 995、1 999及 2 0 0 2年的城镇住户调查数据分析收入不确定性、失业风险、医疗支出不确定性及教育支出等因素对城镇居民消费行为的影响。研究结果表明这些不确定性因素对城镇居民消费水平具有显著的负效应 ,但效应的大小也因这些因素的可预期性的变化而变化。因此增强政策的可预见性、完善社会保障制度等措施对化解居民收支风险将具有重要作用。     

Determinants of the adjusted net saving rate in developing economies

The adjusted net saving rate, initially known as the genuine saving rate, was first published by the World Bank in the late 1990s as a more comprehensive measure of national saving and one more indicative of sustainable development. The adjusted net saving rate incorporated not just physical capital depreciation, but natural capital depletion and environmental damage, as well as including some human capital formation. In this paper, using a cross‐section of developing economies for 2001–2006, determinants of the adjusted net saving rate are estimated. For comparison, the same determinants for the gross national saving rate are estimated. Also, a basic Solow growth model is extended to incorporate natural resources and to justify a more comprehensive measure of savings, such as the adjusted net saving rate, for modeling economic growth. The two measures of savings are then compared as determinants in estimations of economic growth. Understanding the determinants of the adjusted net saving rate is useful for policies to promote sustainable development.     

Ricardian equivalence and the public and private saving nexus in India

This study tests the Ricardian equivalence theorem (RET) and examines the responsiveness of private saving to public saving in India. Most estimators do not provide support for the empirical validity of RET and long-run cointegration between public and private saving. The increases in household saving (HHS) seem to have been engendered by the provision of saving incentives, institution of saving schemes, self-driven motivation to save, and the precautionary accumulations induced by uncovered uncertainties in incomes, rather than by Ricardian behaviour of households. The self-imposed aversion to debt and debt bequest, borrowing and liquidity constraints, and the intertemporal smoothing of consumption have been the added catalysts that contributed to the increases in HHS. The households with binding borrowing constraints, inadequate or no insurance and uncovered uncertainties in incomes seem to have been saving more to pay for higher inflation-tax. The fiscal consolidation and generation of public saving are essential to reduce the tax burden (both explicit through fiscal taxes and implicit through inflation-tax), minimize the likelihoods of economic and financial crises, and maintain the internal and external value of domestic currency.     

浅谈德州市工业节水

随着国民经济的发展,水资源紧缺状况日益严峻,探讨德州市工业节水途径,缓解水资源供求矛盾,是促进德州市国民经济持续稳定发展的迫切需要。     

On the utility premium of Friedman and Savage

We re-examine the utility premium of Friedman–Savage [Friedman, Milton and Savage, Leonard J., “The Utility Analysis of Choices Involving Risk.” Journal of Political Economy 56, 1948, pp. 279–304.]. This measure is useful in understanding risky choices. For instance its reaction to an increased wealth equates to a precautionary demand for saving. We also analyze its two components.     

A nonbehavioral theory of saving

The article presents a demand-driven model, where the saving rate of households at the bottom of the income distribution becomes the endogenous variable that adjusts for full employment to be maintained over time. An increase in income inequality and the current account deficit and a consolidation of the government budget lead to a decrease in the saving rate of the household sector. Such a process is unsustainable because it leads to an increase in the debt-to-income ratio of the households and its maintenance depends on some kind of asset bubble. This framework allows us to better understand the factors that led to the Great Recession in the United States and the dilemma of the present and the future regarding a repeat of this unsustainable process or secular stagnation.