Incentive and welfare effects of an idiosyncratic interest rate

Courbage, Christophe (Haute école de gestion de Genève, HES-SO // Haute Ecole Spécialisée de Suisse Occidentale) ; Peter, Richard (University of Iowa, USA) ; Rey, Béatrice (Université de Lyon, France ; CNRS)

We provide a microeconomic analysis of saving behavior with idiosyncratic interest rates, for which a transfer rate determines the spread between the interest rate in the good and the bad state. A positive (negative) transfer rate reinforces the decision to save for correlation loving (averse) individual. We also de_ne a critical transfer rate that induces agents to save who would not do so otherwise, and determine its comparative statics. We _nd su_cient conditions for a larger transfer rate to increase savings and show that an idiosyncratic interest rate is welfare increasing for individuals with non-trivial correlation attitudes. The welfare bene_ts of idiosyncratic interest rates are related to their insurance e_ects.


Keywords:
Conference Type:
full paper
Faculty:
Economie et Services
School:
HEG - Genève
Institute:
CRAG - Centre de Recherche Appliquée en Gestion
Subject(s):
Economie/gestion
Publisher:
San Fransisco, USA, 4-8 August 2019
Date:
2019-08
San Fransisco, USA
4-8 August 2019
Pagination:
32 p.
Published in:
Proceedings of the American Risk and Insurance Association (ARIA) Annual Meeting
Appears in Collection:



 Record created 2019-08-13, last modified 2019-10-16

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