search query: @author Eeckhoudt, L. / total: 6
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| Author: | Eeckhoudt, L. Gollier, C. Treich, N. |
| Title: | Optimal consumption and the timing of the resolution of uncertainty |
| Journal: | European Economic Review
2005 : APR, VOL. 49:3, p. 761-773 |
| Index terms: | Consumption Savings Uncertainty Models |
| Language: | eng |
| Abstract: | Consumers want to accumulate precautionary savings in the face of income risks when their marginal utility is convex (prudence). This paper explores the effect of the timing of the resolution of income uncertainty on savings. It is shown that the effect is positive, if and only if, marginal utility is convex (prudence), when either the risk free rate is equal to the rate of pure preference for the present, or when the utility function is HARA. The intuition is that an early resolution of uncertainty allows for time-diversifying the risk. It therefore plays a role similar to a reduction of the income risk, whose effect on savings is negative under prudence. |
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