NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Precautionary Saving in the Small and in the Large

Miles S. Kimball

NBER Working Paper No. 2848
Issued in February 1989
NBER Program(s):   ME

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.

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Document Object Identifier (DOI): 10.3386/w2848

Published: Econometrica, vo. 58, no. 1, January 1990. citation courtesy of

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