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Health and Wealth in a Life Cycle Model

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  • John Karl Scholz

    (University of Wisconsin-Madison)

  • Ananth Seshadri

    (University of Wisconsin-Madison)

Abstract

This paper presents a preliminary model of health investments over the life cycle. Health affects both longevity and provides flow utility. We analyze the interplay between consumption choices and investments in health by solving each household’s dynamic optimization problem to obtain predictions on health investments and consumption choices over the lifecycle. Our preliminary model does a good job of matching the distribution of medical expenses across households in the sample. We illustrate the scope of future model applications by examining the effects of a stylized Medicare program on patterns of wealth and mortality.

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File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp224.pdf
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Bibliographic Info

Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp224.

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Length: 34 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:mrr:papers:wp224

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  1. Amy Finkelstein & Erzo F. P. Luttmer & Matthew J. Notowidigdo, 2013. "What Good Is Wealth Without Health? The Effect Of Health On The Marginal Utility Of Consumption," Journal of the European Economic Association, European Economic Association, vol. 11, pages 221-258, 01.
  2. Kopecky, Karen A. & Koreshkova, Tatyana, 2009. "The Impact of Medical and Nursing Home Expenses and Social Insurance Policies on Savings and Inequality," MPRA Paper 16197, University Library of Munich, Germany.
  3. Mariacristina De Nardi & Eric French & John Bailey Jones, 2009. "Why do the Elderly Save? The Role of Medical Expenses," NBER Working Papers 15149, National Bureau of Economic Research, Inc.
  4. Motohiro Yogo, 2009. "Portfolio Choice in Retirement: Health Risk and the Demand for Annuities, Housing, and Risky Assets," NBER Working Papers 15307, National Bureau of Economic Research, Inc.
  5. Finkelstein, Amy & McKnight, Robin, 2008. "What did Medicare do? The initial impact of Medicare on mortality and out of pocket medical spending," Journal of Public Economics, Elsevier, vol. 92(7), pages 1644-1668, July.
  6. Fonseca, Raquel & Michaud, Pierre-Carl & Galama, Titus & Kapteyn, Arie, 2009. "On The Rise of Health Spending and Longevity," IZA Discussion Papers 4622, Institute for the Study of Labor (IZA).
  7. David Card & Carlos Dobkin & Nicole Maestas, 2009. "Does Medicare Save Lives?," The Quarterly Journal of Economics, MIT Press, vol. 124(2), pages 597-636, May.
  8. Karen A. Kopecky & Tatyana Koreshkova, 2010. "The impact of medical and nursing home expenses and social insurance," Working Paper 2010-19, Federal Reserve Bank of Atlanta.
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