Precautionary Saving in the Small and in the Large

26 Pages Posted: 25 Jun 2004 Last revised: 15 Oct 2022

See all articles by Miles S. Kimball

Miles S. Kimball

University of Colorado Boulder; University of Michigan at Ann Arbor - Department of Economics; Center for Economic and Social Research, USC; National Bureau of Economic Research (NBER)

Date Written: February 1989

Abstract

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.

Suggested Citation

Kimball, Miles S., Precautionary Saving in the Small and in the Large (February 1989). NBER Working Paper No. w2848, Available at SSRN: https://ssrn.com/abstract=447252

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