Saving, Risk Sharing, and Preferences for Risk

An important feature of household saving decisions is the ability of individual members to share risk among them. With few exceptions, theoretical and empirical studies characterize household saving as if a single agent were making the decision. Under this assumption, the risk-sharing component of household saving is largely ignored. This paper is one of the first attempts to analyze the effect of risk sharing on saving by characterizing the household as a group of agents making efficient decisions.