Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
956775 | Journal of Economic Theory | 2013 | 16 Pages |
Abstract
This paper develops a model of safety first consumption behavior in which the likelihood of survival to the next period depends on current consumption levels. Below a threshold asset level, individuals follow a decumulation path, and above that level they follow an accumulation path. Saving rates then vary discontinuously with asset level, generating a poverty trap and divergence in incomes. An increase in the likelihood of surviving raises aggregate saving. A more equitable distribution of assets can be consistent with greater aggregate savings and growth because of declining marginal propensity to save over some asset intervals.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Michael Sattinger,