Increasing Risk and Nonseparable Utility Functions

Roger R. Betancourt , Journal of Economic Theory 6(6) , 575-581 , December 1973.

Assuming that the intertemporal utility function is separable, conditions are established which determine when an increase in risk with respect to the rate of interest is likely to increase or decrease savings and the supply of work effort. Without assuming intertemporal separability similar results are derived for the case where present and future consumption of both leisure and commodities are complements. A heuristic interpretation of the results concerning the behavior of the Arrow-Pratt measure of relative risk aversion is provided.

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