Prudence and Precautionary Saving by Natural Resource Users

Research Seminars: Environmental Economics Brownbag Seminar

Worsening income shocks due to climate change and overexploitation can result in severe hardships for households of natural resource users if they are unable to smooth consumption. This paper utilizes the institutional framework and diversity of the artisanal Chilean fisheries sector to study precautionary savings behaviour in response to income variability whilst controlling for higher order risk preferences (prudence). Agents harvesting resources governed by restrictive quotas have a preference for more precautionary savings compared to agents in open-access regimes. This indicates that restrictive quotas could set an upper-bound on the ability of natural resource users to smooth consumption by adjusting resource extraction rates, increasing the importance of self-insurance through saving. Additionally, we  test if prudence is a predictor of precautionary savings and whether prudence relates to occupational choice. We find some evidence for self-selection, as open-access resource users are on average more prudent and prudent agents have a stronger preference for salaried work.

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ZEW – Leibniz-Zentrum für Europäische Wirtschaftsforschung

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L 7, 1, 68161 Mannheim
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