The Saving Behaviour of a Two Person Household

Research output: Working paperResearch

Wives are typically younger than their husbands and women typically live longer than men. These two facts mean that for a typical married couple, wives have more incentive to save for old age than do husbands. This paper presents a theoretical model of the determination of household saving and portfolio choice taking into account differences in preferences for saving. The model is a non-cooperative game in which each person can use their own current income to contribute to current (household) consumption or to a range of assets. The results derived are in marked contrast to 'unitary' models of intertemporal allocation that assume a single household utility function and conclude that saving is unaffected by the distribution of income within the household. The most important result is that the level and the composition (portfolio) of savings and the time path of consumption is highly dependent on the distribution of income within the household. It is also shown that the introduction of an actuarially fair state pension scheme may have non-neutral effects on saving. Finally it is shown that households may invest in both an annuity and insurance for the same person which is not possible in a unitary model
Original languageEnglish
PublisherDepartment of Economics, University of Copenhagen
Number of pages32
Publication statusPublished - 1996

ID: 2999626