Traditionally, risk aversion (both absolute and relative) has been expressed as a function of wealth alone. The characteristics of risk aversion as wealth changes have been extensively studied. However, prices, as well as wealth, enter the indirect utility function, from which the typical risk aversion measures are calculated. Given that, changes in prices will affect risk aversion, although ex...

This paper examines how aversion to risk and aversion to intertemporal substitution determine the strength of the precautionary saving motive in a two-period model with Selden/Kreps-Porteus preferences. For small risks, we derive a measure of the strength of the precautionary saving motive which generalizes the concept of "prudence" introduced by Kimball (1990b). For large risks, we show that d...

In this paper it has been attempted to investigate the capability of the consumption-based capital asset pricing model (CCAPM), using the general method of moment (GMM), with regard to the Epstien-zin recursive preferences model for Iran's capital market. Generally speaking, recursive utility permits disentangling of the two psychologically separate concepts of risk aversion and elasticity of i...

Most classical tests of constant relative risk aversion (CRRA) based on individual portfolio composition use cross sectional data. Such tests must assume that the distributions of wealth and preferences are independent. We use panel data to analyze how individuals’ portfolio allocation between risky and riskless assets varies in response to changes in total financial wealth. We find the elastic...

An axiomatic characterization of recursive utility with source-dependent constant relative risk aversion (CRRA), constant elasticity of intertemporal substitution, constant rate of impatience and subjective beliefs is established. The utility form is a minimal extension of Epstein-Zin-Weil utility that allows the CRRA to depend on the source of risk, a dependence that admits an ambiguity aversi...

In this paper we model taxpayer participation in an unanticipated tax amnesty which can be entered by paying a fixed amount. Taxpayers are characterized by a Constant Relative Risk Aversion (CRRA) utility function and differ in relative risk aversion coefficient and in income. With minor changes the same model also describes a FATOTA (Fixed Amount of Taxes or Tax Audit) system. Our results show...