Prudence is widely known for inducing precautionary saving behavior. This paper revisits this important implication by introducing the notions of first-order and second-order prudence. Within smooth expected utility (EU), prudence is second-order. In that case, the presence of a small,...

Using a model where households can save in either a safe asset or in an illiquid, tax-advantaged pension, we assess the extent to which those who recently reached the state pension age in the UK have saved optimally for retirement. The policy environment specified closely matches that prevailing...

China's growth is characterized by massive capital accumulation, made possible by high and increasing domestic savings. In this paper we develop a model with the aim of explaining why savings rates have been high and increasing, and we investigate the general equilibrium effects on capital...

The design of pension schemes is crucial in determining savings behavior. The impact of pension schemes on saving rates across countries remains to be an intriguing empirical question considering the complicated nature of the relationship between saving patterns and pension wealth. This paper...

In this paper, I survey the previous literature on the saving behavior of the aged in Japan and then present some survey data on the saving behavior of the aged in Japan that became available recently. To summarize the main findings of this paper, all previous studies as well as the newly...

This paper considers the quantitative role of growth in the size of the social security program in contributing to the collapse of personal saving in the U.S. over the last few decades. Using a calibrated, general equilibrium life-cycle model this paper shows that social security may not be to...

This paper presents data on Japan’s household saving rate, considers the reasons for Japan’s high household saving rate in the past and the reasons for the recent decline therein, projects future trends in Japan’s household saving rate, and consider the implications of my findings. It...

We analyze the impact of population aging on Japan’s household saving rate and on its public pension system and the impact of that system on Japan’s household saving rate and obtain the following results: first, the age structure of Japan’s population can explain the level of, and past and...

We use a life cycle model of consumption and portfolio choice to study the effects of social security on the investment decisions of households for the European case. Our model is mainly based on the one developed by Cocco, Gomes, and Maenhout (2005). We extend it by unemployment risk using...

The well-documented positive correlation between income risk and wealth was interpreted as evidence for high amounts of precautionary wealth in various studies. However, the large estimates emerged from pooling non-entrepreneurs and entrepreneurs without controlling for heterogeneity. This paper...