Marginal Utility Shocks and the Precautionary Saving Puzzle
Abstract: This paper introduces a novel mechanism linking wealth accumulation to shocks in marginal utility rather than income alone. In contrast to the Bewley–Aiyagari–Huggett (BAH) framework, where savings eventually decline with wealth, I show that when households face idiosyncratic longevity shocks that alter the continuation value of utility, saving can remain strictly positive above some threshold. The model predicts that maintaining marginal utility becomes a luxury relative to consumption, inducing precautionary saving even among the wealthy. Using Health and Retirement Study (HRS) data on U.S. couples aged 55–65, I document that saving and saving rates rise with wealth, contrary to BAH predictions. Calibrating the model with health and income transitions, I find that the mechanism accounts for more than one-quarter of observed average savings. The results imply that precautionary motives, rather than bequest or return heterogeneity, drive much of the saving behavior at the top of the wealth distribution.
Imputing Total Health Expenditure in HRS
Abstract: This paper imputes total medical spending for the Health and Retirement Survey (HRS) using the Medical Expenditure Survey (MEPS) and discusses moment consistency of the imputed health expenditure. The main theorem proves that, under classical assumptions, OLS estimates remain consistent when using the imputed dependent variable.
Online Innovation, Market Entry and Competition in Remote Indigenous Communities