Risk and Precautionary Saving in Two-Person Households
Patricia F. Apps, Yuri Andrienko and Ray Rees
Photo: American Economic Review
American Economic Review 104 (3) pp. 1040-1046.
The existing literature on precautionary saving is based almost entirely on the assumption that the household acts as if it consisted of a single individual decision-taker. In reality, saving decisions are typically taken by two-person households. This paper examines the implications of this observation for the existence of precautionary saving, and shows that the assumption that the individual utility functions satisfy the conditions for precautionary saving to exist can imply that the household exhibits precautionary saving, but only under strong assumptions on the type of risk change being considered.