Nor was there wanting still another
precautionary motive more related to Ahab personally.
Consequently, this study seeks to understand whether short-term
precautionary motives of households affect their participation in and contribution to saving intermediaries.
These effects and
precautionary motives may have been amplified by financial under-development, as reflected in constraints on borrowing against future income and low returns on financial assets.
A high fluctuation in cash flows and prevailing uncertainty in the market lead the firms to hold excess cash in their portfolio holdings which explains the
precautionary motives of a firm; however, Jenson (1986) associated agency cost with holding too much cash.
He places sole responsibility for China's soaring saving rate on
precautionary motives.
The first two measures will directly boost consumption, and the third will indirectly help to raise consumption by allaying the widespread
precautionary motives that lead to excessively high household and business savings.
However, households will save much more because of sharp declines in housing wealth, credit constraints and
precautionary motives at a time of rising unemployment: the saving ratio will rise from 1.
Nevertheless, when
precautionary motives are weak, decisions depend mostly on the mean, and errors in approximating the tails don't matter much.
If we consider two individuals, with one more risk averse than the other, we need to compare the intensities of their
precautionary motives, in addition to their measures of risk aversion, before we can determine who buys more insurance coverage in the presence of the state dependent background risk.
Bernanke noted in his speech, ''with consumer credit not readily available and
precautionary motives for saving remaining strong,'' China's domestic consumption was also restrained.
However, we note that higher net wealth also implies less permanent income variability, so that the importance of net wealth could point to
precautionary motives just as easily as to liquidity constraints.
In survey data, consumers report
precautionary motives as an important impetus for saving.
