Risk Sharing And Precautionary Saving
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Risk Sharing and Precautionary Saving
Author | : Luigi Guiso |
Publisher | : |
Total Pages | : 56 |
Release | : 1992 |
Genre | : Consumption (Economics) |
ISBN | : |
Risk Pooling and Precautionary Saving in Village Economies
Author | : Marcel Fafchamps |
Publisher | : |
Total Pages | : 0 |
Release | : 2022 |
Genre | : |
ISBN | : |
We propose a new method to test for efficient risk pooling that allows for intertemporal smoothing, non-homothetic consumption, and heterogeneous risk and time preferences. The method is composed of three steps. The first one allows for precautionary savings by the aggregate risk pooling group. The second utilizes the inverse Engel curve to estimate good-specific tests for efficient risk pooling. In the third step, we obtain consistent estimates of households' risk and time preferences using a full risk sharing model, and incorporate heterogeneous preferences in testing for risk pooling. We apply this method to panel data from Indian villages to generate a number of new insights. We find that food expenditures are better protected from aggregate shocks than non-food consumption, after accounting for non-homotheticity. Village-level consumption tracks aggregate village cash-in-hand, suggesting some form of coordinated precautionary savings. But there is considerable excess sensitivity to aggregate income, indicating a lack of full asset integration. We also find a large unexplained gap between the variation in measured consumption expenditures and cash-in-hand at the aggregate village level. Contrary to earlier findings, risk pooling in Indian villages no longer appears to take place more at the sub-caste level than at the village level.
Dissecting Saving Dynamics
Author | : Mr.Christopher Carroll |
Publisher | : International Monetary Fund |
Total Pages | : 47 |
Release | : 2012-09-01 |
Genre | : Business & Economics |
ISBN | : 1475505698 |
We argue that the U.S. personal saving rate’s long stability (from the 1960s through the early 1980s), subsequent steady decline (1980s - 2007), and recent substantial increase (2008 - 2011) can all be interpreted using a parsimonious ‘buffer stock’ model of optimal consumption in the presence of labor income uncertainty and credit constraints. Saving in the model is affected by the gap between ‘target’ and actual wealth, with the target wealth determined by credit conditions and uncertainty. An estimated structural version of the model suggests that increased credit availability accounts for most of the saving rate’s long-term decline, while fluctuations in net wealth and uncertainty capture the bulk of the business-cycle variation.
Precautionary Savings and the Importance of Business Owners
Author | : Erik Hurst |
Publisher | : |
Total Pages | : 74 |
Release | : 2005 |
Genre | : Business enterprises |
ISBN | : |
In this paper, we show the pivotal role business owners play in estimating the importance of the precautionary saving motive. Since business owners hold larger amounts of wealth than other households for non-precautionary reasons and also face highly volatile income, they induce a correlation between wealth and income risk regardless of whether or not a precautionary saving motive exists. Using data from the Panel Study of Income Dynamics in the 1980s and the 1990s, we show that among both business owners and non-business owners, the size of precautionary savings with respect to labor income risk is modest and accounts for less than ten percent of total household wealth. However, pooling together the two groups leads to an artificially high estimate of the importance of precautionary savings. New data from the Survey of Consumer Finances further confirms that precautionary savings account for less than ten percent of total wealth for both business owners and non-business owners. Thus, while a precautionary saving motive exists and affects all households, it does not give rise to high amounts of wealth in the economy, particularly among those households who face the most volatile stream of income.
The Economics of Risk and Time
Author | : Christian Gollier |
Publisher | : MIT Press |
Total Pages | : 492 |
Release | : 2001 |
Genre | : Business & Economics |
ISBN | : 9780262572248 |
Updates and advances the theory of expected utility as applied to risk analysis and financial decision making.
International Risk Sharing in the Short Run and in the Long Run
Author | : Sascha O. Becker |
Publisher | : |
Total Pages | : 44 |
Release | : 2001 |
Genre | : Capital market |
ISBN | : |
Precautionary Saving in the Small and in the Large
Author | : Miles S. Kimball |
Publisher | : |
Total Pages | : 44 |
Release | : 1989 |
Genre | : Consumption (Economics) |
ISBN | : |
The theory of precautionary saving is shown in this paper to be isomorphic to the Arrow-Pratt theory of risk aversion, making possible the application of a large body of knowledge about risk aversion to precautionary saving, and more generally, to the theory of optimal choice under risk. In particular, a measure of the strength of precautionary saving motive analogous to the Arrow-Pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving, and to give a new interpretation of the Oreze-Modigliani substitution effect.