|Title:||Increase in risk and saving behavior||Authors:||Tzeng L.Y.
|Keywords:||Central risk dominance;Increase in risk;Saving;Stochastic dominance||Issue Date:||2004||Journal Volume:||56||Journal Issue:||5||Start page/Pages:||405-414||Source:||Journal of Economics and Business||Abstract:||
This paper extends the traditional unambiguous comparative statics analysis of an increase in risk into the case where individual's utility is a function of two goods rather than of a payoff only. Specifically, we use saving behavior to demonstrate the application of the extension. We find that a first-order stochastic dominance of rate of return causes a nonsatiable and risk-averse borrower to increase his borrowing. A mean-preserving second-order stochastic dominance of rate of return causes a borrower, who is risk-averse and prudent, to decrease his borrowing. Furthermore, we find that a stronger central risk dominance leads a nonsatiable and risk-averse lender to decrease his saving. Last, for the mean-preserving CDF shifts, we give a necessary and sufficient condition for all risk-averse lenders (respectively, borrowers) to decrease their saving (respectively, borrowing). ? 2004 Elsevier Inc. All rights reserved.
|Appears in Collections:||財務金融學系|
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