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Luigi Ventura
''A note on the relevance of prudence in precautionary saving.''
( 2007, Vol. 4 No.23 )
The aim of this note is to suggest that prudence, i.e. convexity of marginal utility, can only explain a small share of precautionary savings, which we may define as savings generated by variance in income. Therefore, if we are willing to admit that precautionary savings constitute a sizable share of total savings, other factors should be called for. We present a few examples showing that risk aversion might constitute one such factor.
JEL: D8 - Information, Knowledge, and Uncertainty: General
Manuscript Received : May 30 2007 Manuscript Accepted : Jun 17 2007

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