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Intertemporal choice with health-dependent discounting

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  • Strulik, Holger

Abstract

In this paper I discuss a standard model of life cycle consumption behavior when the discount rate depends on the state of health and health deteriorates with increasing age. I show that this feature allows the introduction of time-consistent discounting at a non-constant rate and to model, in a convenient way, the notion that individuals discount future payoffs at higher rates when the risk of death increases. I show that the model generates an empirically plausible age-consumption pattern even when perfect annuity markets exist.

Suggested Citation

  • Strulik, Holger, 2021. "Intertemporal choice with health-dependent discounting," Mathematical Social Sciences, Elsevier, vol. 111(C), pages 19-25.
  • Handle: RePEc:eee:matsoc:v:111:y:2021:i:c:p:19-25
    DOI: 10.1016/j.mathsocsci.2021.03.001
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    References listed on IDEAS

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    1. Jesus Fernández-Villaverde & Dirk Krueger, 2007. "Consumption over the Life Cycle: Facts from Consumer Expenditure Survey Data," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 552-565, August.
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    3. Kenneth Harttgen & Paul Kowal & Holger Strulik & Somnath Chatterji & Sebastian Vollmer, 2013. "Patterns of Frailty in Older Adults: Comparing Results from Higher and Lower Income Countries Using the Survey of Health, Ageing and Retirement in Europe (SHARE) and the Study on Global AGEing and Adu," PLOS ONE, Public Library of Science, vol. 8(10), pages 1-11, October.
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    16. Strulik, Holger, 2012. "Patience and prosperity," Journal of Economic Theory, Elsevier, vol. 147(1), pages 336-352.
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    2. Hosoya, Kei, 2023. "Impact of infectious disease pandemics on individual lifetime consumption: An endogenous time preference approach," Journal of Macroeconomics, Elsevier, vol. 76(C).

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