Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)
Attitudes towards income risk in the presence of quantity constraints.
Abstract: Considering a consumer with standard preferences, I trace
out the consequences for risk aversion and prudence of quantity constraints
on markets. I first show how the effect can be decomposed into a price risk
effect and an endogenously changing risk aversion/prudence effect. Next, I
calibrate locally both effects on relative risk aversion and prudence,
using estimates on household demand for durables and labour supply.
Finally, I performa global numerical analysis of these effects. I conclude
that quantity constraints have counter-intuitive and pronounced non-linear
effects on risk attitudes.
Keywords: Household demand; income risk aversion; prudence; quantity constraints; labour supply.; (follow links to similar papers)
JEL-Codes: D11; D81; (follow links to similar papers)
39 pages, April 7, 2011
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