Precautionary Saving and Endogenous Labor Supply With and Without Intertemporal Expected Utility

Abstract

We analyze precautionary saving behavior in a framework with labor and non-labor income risks, an endogenous supply of labor, and a representation of preferences that disentangles attitudes towards risk, attitudes towards intertemporal smoothing, and ordinal preferences for consumption and leisure. This preference structure allows us to disentangle and to describe in an intuitive way the different forces that determine precautionary saving “in the small” and “in the large”.