Estimation of the Saving Function without Expected Utility

Working Papers from York University, Department of Economics

Abstract: In this paper, we use duality properties to show that the saving function can be derived in a non-expected utility framework, even with fairly general preferences. We propose an econometric framework for estimation of the cross-country aggregate saving function, using a flexible functional form for preferences. A set necessary conditions for the validity of expected utility hypothesis emerges, which we test using cross-country savings data. Expected utility hypothesis is rejected by the data. Estimated elasticities of savings with respect to income and interest rate show considerable heterogeneity across rich and poor countries opening up new theoretical issues.

Keywords: Non-Expected utility; Savings; Moments (search for similar items in EconPapers)
Pages: 18 pages
Date: 2002-02
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