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Full-Text Articles in Social and Behavioral Sciences
Recursive Preferences, The Value Of Life, And Household Finance, Antoine Bommier, Daniel Harenberg, François Le Grand, Cormac O'Dea
Recursive Preferences, The Value Of Life, And Household Finance, Antoine Bommier, Daniel Harenberg, François Le Grand, Cormac O'Dea
Cowles Foundation Discussion Papers
We analyze lifecycle saving strategies using a recursive utility model calibrated to match empirical estimates of the value of a statistical life. The novelty of our approach is that we require preferences to be monotone with respect to first order stochastic dominance. The framework we use can disentangle risk aversion and the intertemporal elasticity and can feature a positive value of life without placing constraints on the value of the risk aversion parameter or the intertemporal elasticity of substitution. We show that, with a positive value of life, risk aversion reduces savings, decreases stock market participation and decreases annuity purchase. …
Recursive Preferences, The Value Of Life, And Household Finance, Antoine Bommier, Daniel Harenberg, François Le Grand, Cormac O'Dea
Recursive Preferences, The Value Of Life, And Household Finance, Antoine Bommier, Daniel Harenberg, François Le Grand, Cormac O'Dea
Cowles Foundation Discussion Papers
We analyze lifecycle saving strategies using a recursive utility model calibrated to match empirical estimates for the value of a statistical life. We show that, with a positive value of life, risk aversion reduces savings and annuity purchase. Risk averse agents are willing to make an early death a not-so-adverse outcome by enjoying greater consumption when young and bequeathing wealth in case of death. We also find that greater risk aversion lowers stock market participation. We show that this model can rationalize low annuity demand while also matching empirically documented levels of wealth and private investments in stocks. Our findings …