Concavity of the Consumption Function with Recursive Preferences
نویسنده
چکیده
Carroll and Kimball (1996) show that the consumption function for an agent with time-separable, isoelastic preferences is concave in the presence of income uncertainty. In this paper I show that concavity breaks down if we abandon time-separability. Namely, if an agent maximizing an isoelastic recursive utility has preferences for early resolution of uncertainty, there always exists a distribution of income risk such that consumption function is not concave in wealth. I also derive sufficient conditions guaranteeing that the consumption function is concave if the agent has preferences for late resolution of uncertainty. JEL Classification: D14, D91, E21
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