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Marco Magnani - One of the best experts on this subject based on the ideXlab platform.
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The theory of Precautionary Saving: an overview of recent developments
Review of Economics of the Household, 2019Co-Authors: Donatella Baiardi, Marco Magnani, Mario MenegattiAbstract:This work reviews recent developments in the literature analyzing Precautionary Saving. After a description of traditional Precautionary Saving theory, which considers labor income risk and interest rate risk, we present different research lines which introduce a wide range of extensions and generalizations of the classical model: the contemporaneous presence of multiple risks, changes in risks of different types, multiple variables affecting household utility, preferences non-featuring risk aversion and joint decisions on many choice variables. For each of these issues, we provide specific highlights which summarize the main results obtained in the literature. Lastly, we briefly discuss the analyzes beyond the classical model.
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Precautionary retirement and Precautionary Saving
Journal of Economics, 2019Co-Authors: Marco MagnaniAbstract:Abstract The paper analyzes the lifetime utility maximization problem of an agent who chooses her Saving and timing of retirement in the presence of labor income risk in a simple setting where a pure redistributive pension scheme is in place. In this context, a Precautionary motive for retirement, which pushes old workers to replace an uncertain labor income with certain pension payments, and to retire early is identified. The conditions for Precautionary retirement and Saving to arise are then characterized and interpreted in two settings. In the first setting, utility only depends on income, and a sufficiently low level of absolute prudence is necessary for Precautionary retirement. A sufficiently high level is necessary however for Precautionary Saving, which can coexist with Precautionary retirement only for intermediate values of absolute prudence. In the second setting, agent utility also depends on leisure, and three conditions allow the Precautionary motive for retirement and Saving to jointly operate: prudence, an index of absolute prudence sufficiently low and cross-prudence in leisure.
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Precautionary Saving and Precautionary Retirement
SSRN Electronic Journal, 2016Co-Authors: Marco MagnaniAbstract:The present paper studies the retirement decision and considers the interactions between specific features of the preferences of the decision maker such as her level of temperance, prudence and risk-aversion, and the conditions prevailing in the labor market. The aim is to study how labor income uncertainty affects retirement decisions. In this context, a Precautionary motive for retirement is identified which may push into early retirement older people who are willing to replace an uncertain labour income with a certain stream of pension payments. The conditions for Precautionary retirement and for Precautionary Saving to emerge are characterized and interpreted. This allows further to investigate the circumstances where Precautionary retirement crowds out Precautionary Saving.
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Precautionary Saving and changes in risk correlation
Economics Bulletin, 2015Co-Authors: Marco Magnani, Mario MenegattiAbstract:This note analyzes the effect of a change in the covariance between labor income risk and interest rate risk on the threshold level for prudence ensuring positive Precautionary Saving, recently derived by Baiardi, Magnani and Menegatti (2014). We show that this effect is different in different cases. An increase in the covariance between the two risks decreases (increases) the threshold level when the variance of labor income is smaller (larger) than the variance of the return on Saving. An interpretation of these results in terms of elasticity of total variance with respect to Saving is provided.
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A New Interpretation of the Condition for Precautionary Saving in the Presence of an Interest-Rate Risk
SSRN Electronic Journal, 2015Co-Authors: Marco MagnaniAbstract:This note reconsiders the classical problem of Precautionary Saving in the presence of an interest-rate risk, and provides a new interpretation of the threshold of 2 for the relative prudence index, which characterizes the necessary and sufficient condition for Precautionary Saving.
Mario Menegatti - One of the best experts on this subject based on the ideXlab platform.
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The theory of Precautionary Saving: an overview of recent developments
Review of Economics of the Household, 2019Co-Authors: Donatella Baiardi, Marco Magnani, Mario MenegattiAbstract:This work reviews recent developments in the literature analyzing Precautionary Saving. After a description of traditional Precautionary Saving theory, which considers labor income risk and interest rate risk, we present different research lines which introduce a wide range of extensions and generalizations of the classical model: the contemporaneous presence of multiple risks, changes in risks of different types, multiple variables affecting household utility, preferences non-featuring risk aversion and joint decisions on many choice variables. For each of these issues, we provide specific highlights which summarize the main results obtained in the literature. Lastly, we briefly discuss the analyzes beyond the classical model.
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Precautionary Saving and changes in risk correlation
Economics Bulletin, 2015Co-Authors: Marco Magnani, Mario MenegattiAbstract:This note analyzes the effect of a change in the covariance between labor income risk and interest rate risk on the threshold level for prudence ensuring positive Precautionary Saving, recently derived by Baiardi, Magnani and Menegatti (2014). We show that this effect is different in different cases. An increase in the covariance between the two risks decreases (increases) the threshold level when the variance of labor income is smaller (larger) than the variance of the return on Saving. An interpretation of these results in terms of elasticity of total variance with respect to Saving is provided.
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New results on Precautionary Saving under two risks
Economics Letters, 2015Co-Authors: Donatella Baiardi, Marco Magnani, Marzia De Donno, Mario MenegattiAbstract:This paper identifies a new sufficient condition for a prudent agent to have positive Precautionary Saving in the presence of labor income and interest rate risks of any size. We also provide three economic interpretations for this condition focusing respectively on the marginal effect of Saving on total income variance, on the sign of the covariance between total income and the return of Saving, and on the effect of Saving on the utility premium.
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Precautionary Saving under many risks
Journal of Economics, 2014Co-Authors: Donatella Baiardi, Marco Magnani, Mario MenegattiAbstract:This paper studies Precautionary Saving when many small risks are considered. We first introduce two simultaneous risks: labor income and interest rate risks. We show that, in this context, sufficient conditions for Precautionary Saving are weaker than in similar models. Moreover, we find that, unlike previous literature, Precautionary Saving can occur in the case of negative covariance between the two risks and in the case of imprudence. We then extend our analysis to a three-risk framework, where a background risk is included. We derive sufficient conditions for Precautionary Saving which are interpreted in the light of the previous literature.
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Precautionary Saving in the presence of other risks: a comment
Economic Theory, 2008Co-Authors: Mario MenegattiAbstract: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.
Christoph Heinzel - One of the best experts on this subject based on the ideXlab platform.
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Comparative Precautionary Saving under higher-order risk and recursive utility
The Geneva Risk and Insurance Review, 2018Co-Authors: Aj A. Bostian, Christoph HeinzelAbstract:Abstract Measuring and comparing the Precautionary Saving motive rest almost exclusively on the expected utility framework, and only focus on income risk or coefficients of the Arrow–Pratt type. We generalize the standard approach by characterizing comparative Precautionary Saving under recursive utility for increases in income risk and increases in risk on the Saving return, including higher-order risk effects. We express the comparisons in terms of Precautionary premia. In addition, we define a new class of preference coefficients, and derive the associated conditions to predict a stronger Precautionary motive. The coefficients provide a detailed picture of the preferences sustaining Precautionary Saving and could be useful in applications.
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Precautionary Saving in the large under higher-order risk and recursive utility
2016Co-Authors: Christoph HeinzelAbstract:The measurement of the strength of the Precautionary Saving motive under recursive utility has been conceptually restricted to reactions to the addition of a zero-mean risk to safe future income. This paper provides characterizations of comparative precaution- ary Saving under recursive utility analogous to Ross' (1981) approach to comparative risk aversion for increases in risk, also of higher order, for the two cases of income risk and a risky Saving return. The characterizations involve a comparison based on Precautionary premia. I also de ne preference-intensity measures of the Ross-type and show how they can equivalently represent comparative Precautionary Saving.
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Precautionary Saving in the large: nth-degree deteriorations in return risk
2016Co-Authors: Christoph HeinzelAbstract:Previous research on the measurement of the strength of the Precautionary Saving motive has concentrated on reactions to an exogenous risk on future income. Com- plementing the work by Liu (2014, Journal of Mathematical Economics), I derive a statement analogous to Ross' (1981, Econometrica) comparative risk aversion for pre- cautionary Saving under increases of return risk. The main theorem involves a compar- ison based on Precautionary premia, whose de nition deals explicitly with the direct endogeneity of risk exposure under return risk. I also de ne preference-intensity mea- sures and state conditions for a representation of the comparative strength of the Precautionary-Saving motive equivalent to the main theorem. All comparisons apply to a wide range of de nitions of risk increases.
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Precautionary Saving in the Large: nth-Degree Deteriorations in Return Risk
2016Co-Authors: Christoph HeinzelAbstract:Previous research on the measurement of the strength of the Precautionary Saving motive has concentrated on reactions to an exogenous risk on future income. Complementing the work by Liu (2014), I derive a statement analogous to Ross' (1981)comparative risk aversion for Precautionary Saving under return-risk increases. The main theorem involves a comparison based on Precautionary premia, whose definition deals explicitly with the immediate endogeneity of risk exposure under return risk. I also define preference-intensity measures and state conditions for a representation of the comparative strength of the Precautionary-Saving motive equivalent to the main theorem. All comparisons apply to a wide range of definitions of risk increases.
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Precautionary Saving in the Large under Higher-Order Risk and Recursive Utility
2016Co-Authors: Christoph HeinzelAbstract:The measurement of the strength of the Precautionary Saving motive under recursive utility (RU) has been conceptually restricted to reactions to the addition of a zero-mean risk to safe future income. This paper provides characterizations of comparative Precautionary Saving under RU analogous to Ross' (1981) approach to comparative risk aversion for increases in risk, also of higher order, covering the two cases of income risk and a risky Saving return. The characterizations involve a comparison based on Precautionary premia. I also define preference-intensity measures of the Ross-type and show how they can equivalently represent comparative Precautionary Saving.
Donatella Baiardi - One of the best experts on this subject based on the ideXlab platform.
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The theory of Precautionary Saving: an overview of recent developments
Review of Economics of the Household, 2019Co-Authors: Donatella Baiardi, Marco Magnani, Mario MenegattiAbstract:This work reviews recent developments in the literature analyzing Precautionary Saving. After a description of traditional Precautionary Saving theory, which considers labor income risk and interest rate risk, we present different research lines which introduce a wide range of extensions and generalizations of the classical model: the contemporaneous presence of multiple risks, changes in risks of different types, multiple variables affecting household utility, preferences non-featuring risk aversion and joint decisions on many choice variables. For each of these issues, we provide specific highlights which summarize the main results obtained in the literature. Lastly, we briefly discuss the analyzes beyond the classical model.
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New results on Precautionary Saving under two risks
Economics Letters, 2015Co-Authors: Donatella Baiardi, Marco Magnani, Marzia De Donno, Mario MenegattiAbstract:This paper identifies a new sufficient condition for a prudent agent to have positive Precautionary Saving in the presence of labor income and interest rate risks of any size. We also provide three economic interpretations for this condition focusing respectively on the marginal effect of Saving on total income variance, on the sign of the covariance between total income and the return of Saving, and on the effect of Saving on the utility premium.
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Precautionary Saving under many risks
Journal of Economics, 2014Co-Authors: Donatella Baiardi, Marco Magnani, Mario MenegattiAbstract:This paper studies Precautionary Saving when many small risks are considered. We first introduce two simultaneous risks: labor income and interest rate risks. We show that, in this context, sufficient conditions for Precautionary Saving are weaker than in similar models. Moreover, we find that, unlike previous literature, Precautionary Saving can occur in the case of negative covariance between the two risks and in the case of imprudence. We then extend our analysis to a three-risk framework, where a background risk is included. We derive sufficient conditions for Precautionary Saving which are interpreted in the light of the previous literature.
Yasuyuki Sawada - One of the best experts on this subject based on the ideXlab platform.
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Precautionary Saving under liquidity constraints: Evidence from rural Pakistan
Journal of Development Economics, 2010Co-Authors: Jeong-joon Lee, Yasuyuki SawadaAbstract: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.
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Precautionary Saving under LiquidityConstraints: Evidence from Rural Pakistan
CIRJE F-Series, 2005Co-Authors: Jeong-joon Lee, Yasuyuki SawadaAbstract:This paper investigates Precautionary Saving under liquidity constraints in Pakistan using household panel data. In particular, while we estimates Kimball’s (1990) prudence parameter, we deviate from Dynan’s (1993) framework by explicitly considering liquidity constraints, as in Zeldes (1989). By doing so, we attempt to differentiate the standard Precautionary Saving caused by uncertainty from the one due to liquidity constraints. Furthermore, endogenous liquidity constraints are considered to resolve issues of selection biases. In this study, we document 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 results support the emerging view that facilitating Saving may often be more important than finding better ways of lending to the poor.
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Precautionary Saving under Liquidity Constraints: Evidence from Rural Pakistan (Published in "Journal of Development Economics". )
CARF F-Series, 2005Co-Authors: Mark Lee, Yasuyuki SawadaAbstract:This paper investigates Precautionary Saving under liquidity constraints in Pakistan using household panel data. In particular, while we estimates Kimball's (1990) prudence parameter, we deviate from Dynan's (1993) framework by explicitly considering liquidity constraints, as in Zeldes (1989). By doing so,we attempt to diffeerentiate the standard Precautionary Saving caused by uncertainty from the oneduetoliquidity constraints. Furthermore, endogenous liquidity constraints are considered toresolveis-sues of selection biases. In this study, we document substantial evidence of the presence of Precautionary Saving in Pakistan. More specifically, the estimated prudence is significantly higher for liquidity-constrainedhouse-holds as compared with unconstrained ones. The results support the emerging view that facilitating Saving may often be more important than finding better ways of lending to the poor.
