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Going from bad to worse: Adaptation to poor health health spending, longevity, and the value of life

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  • Schünemann, Johannes
  • Strulik, Holger
  • Trimborn, Timo

Abstract

Unhealthy people adapt to their poor state of health and are usually happier than expected by healthy people. In this paper, we investigate how adapting to a deteriorating state of health affects health spending, life expectancy, and the value of life. We set up a life-cycle model in which individuals are subject to physiological aging, calibrate it with data from gerontology, and compare behavior and outcomes of adapting and non-adapting individuals. While adaptation generally increases lifetime utility (by about 2 percent), its impact on health behavior and longevity depends crucially on whether individuals are aware of their adaptive behavior, i.e. whether they adapt in a naive or sophisticated way. We also compute the QALY change implied by health shocks and discuss whether and how adaptation influences results and the desirability of positive health innovations.

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  • Schünemann, Johannes & Strulik, Holger & Trimborn, Timo, 2017. "Going from bad to worse: Adaptation to poor health health spending, longevity, and the value of life," Journal of Economic Behavior & Organization, Elsevier, vol. 140(C), pages 130-146.
    • Handle: RePEc:eee:jeborg:v:140:y:2017:i:c:p:130-146
    DOI: 10.1016/j.jebo.2017.02.018
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    More about this item

    Keywords

    Health; Adaption; Aging; Longevity; Health care demand; Value of life; QALYs;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income

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