Uncertainty and Savings Decision

22 Pages Posted: 24 Jun 2009

Date Written: June 24, 2009

Abstract

This paper examines the effects of income shock on savings decision of a household. In particular, it analyzes how an idiosyncratic income shock affects the asset portfolio held by a household. It shows that income volatility contributes to poverty of rural households by leading them to reduce stocks of productive assets in order to accumulate liquid assets. Health related income shocks are signifi┬ůcantly more likely to lead to this than weather related income shocks, thus suggesting that policy interventions in health infrastructure might have a substantial impact on income. The study also reveals important differences in savings behavior between nuclear and joint families.

Keywords: Savings portfolio, household, health shock, weather shock, joint, nuclear

JEL Classification: D13, D81, E21, G11, O12

Suggested Citation

Ravi, Shamika, Uncertainty and Savings Decision (June 24, 2009). Available at SSRN: https://ssrn.com/abstract=1424893 or http://dx.doi.org/10.2139/ssrn.1424893

Shamika Ravi (Contact Author)

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

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