Resource title

How changing prudence and risk aversion affect optimal saving

Resource image

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Resource description

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.

Resource author

Christian Bauer, Wolfgang Buchholz

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/26483

Resource license

Adapt according to the presented license agreement and reference the original author.