Comparative Precautionary Saving under Higher-Order Risk and Recursive Utility
Résumé
Despite the importance of precautionary saving for life-cycle consumption, measuring and comparing the strength of precautionary saving motives have been conceptually restricted, under expected utility, to reactions to increases in income risk, also of higher orders, and, under recursive utility, to actuarially neutral risks added to income. This paper provides characterizations of comparative precautionary saving under recursive utility, analogous to Ross's (1981) comparative risk aversion, for increases in income risk and increases in risk on the saving return, also of higher orders. The characterizations involve comparisons in terms of precautionary premia. In addition, we show for these risk situations how the preferences underpinning precautionary saving can be measured and compared using preference coeffcients