Conditional Impatience and Concavity of Consumption Functions

Abstract

Concave consumption functions imply a marginal propensity to consume that falls with wealth. I characterize the utility functions that guarantee this property in finite-horizon optimal saving problems with stochastic discounting, returns, income, and borrowing limits. Under conditional impatience---the conditional expected discounted gross return does not exceed one---consumption functions are always concave if and only if inverse absolute prudence, $-u''/u'''$, is concave. When no conditional-impatience restriction is imposed, hyperbolic absolute risk aversion (HARA) is necessary and sufficient for uniform concavity. Thus conditional impatience permits declining marginal propensities to consume for a preference class strictly larger than HARA.