Suen, Richard M. H. (2011): Concave consumption function and precautionary wealth accumulation.

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Abstract
This paper examines the theoretical foundations of precautionary wealth accumulation in a multiperiod model where consumers face uninsurable earnings risk and borrowing constraints. We begin by characterizing the consumption function of individual consumers. We show that consumption function is concave when the utility function has strictly positive third derivative and the inverse of absolute prudence is a concave function. These conditions encompass all HARA utility functions with strictly positive third derivative as special cases. We then show that when consumption function is concave, a meanpreserving spread in earnings risk would encourage wealth accumulation at both the individual and aggregate levels.
Item Type:  MPRA Paper 

Original Title:  Concave consumption function and precautionary wealth accumulation 
Language:  English 
Keywords:  Consumption function, borrowing constraints, precautionary saving 
Subjects:  D  Microeconomics > D8  Information, Knowledge, and Uncertainty > D81  Criteria for DecisionMaking under Risk and Uncertainty D  Microeconomics > D9  Intertemporal Choice and Growth > D91  Intertemporal Consumer Choice; Life Cycle Models and Saving E  Macroeconomics and Monetary Economics > E2  Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E21  Consumption; Saving; Wealth 
Item ID:  34774 
Depositing User:  Richard M. H. Suen 
Date Deposited:  18. Nov 2011 00:56 
Last Modified:  13. Feb 2013 21:44 
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URI:  http://mpra.ub.unimuenchen.de/id/eprint/34774 