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Health Disasters and Life Cycle Risk Taking

Author

Listed:
  • Emil Bandoni
  • Carolina Fugazza

Abstract

Medical expenditures increase sharply with age and can impose a significant finan- cial risk on the elderly, even in settings with universal health insurance. In particular, out-of-pocket medical spending remains highly skewed, with a small fraction of indi- viduals facing catastrophic costs. This paper develops a life-cycle model in which rare, idiosyncratic health shocks generate substantial out-of-pocket expenses late in life. The model demonstrates that accounting for these rare health disasters can explain the moderate risk-taking behavior observed among older investors, without invoking be- quest motives. These findings highlight the importance of tail medical risks in shaping late-life financial decisions.

Suggested Citation

  • Emil Bandoni & Carolina Fugazza, 2025. "Health Disasters and Life Cycle Risk Taking," Carlo Alberto Notebooks 748 JEL Classification: D, Collegio Carlo Alberto.
    • Handle: RePEc:cca:wpaper:748
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    References listed on IDEAS

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