This paper introduces the concept of standard risk aversion. A von Neumann-Morgenstern utility function has standard risk aversion if every risk that has a negative interaction with a small reduction in wealth also has a negative interaction with any undesirable, independent risk. It is shown...

This Paper examines how aversion to risk and aversion to intertemporal substitution determines the strength of the precautionary saving motive in a two-period model with Kreps-Porteus preferences. For small risks, we derive a measure of the strength of the precautionary saving motive, which...

For both discrete and continuous time this paper derives the Taylor approximation to the effect of uncertainty (in the simple sense of risk, not Knightian uncertainty) on expected utility and optimal behaviour in stochastic control models when the uncertainty is small enough that one can focus...

This paper analyzes the effects of government debt and income taxes on consumption and saving in a world of infinitely-lived households having uncertain and heterogeneous incomes. The special structure of the model allows exact aggregation across households despite incomplete markets. The...

This paper constructs a dynamic macroeconomic model with less-than-perfect price flexibility which has a classical side consistent with real business cycle theory, augmented by investment adjustment costs; increasing returns to scale; and a new, flexible formalization of imperfect competition....

The theory of precautionary saving is shown to be isomorphic to the Arrow-Pratt theory of risk aversion, making possible the application of a large body of knowledge about risk aversion to precautionary saving--and more generally, to the theory of optimal choice under risk. In particular, a...