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Health and (other) Asset Holdings

  • Julien Hugonnier

    (University of Lausanne and Swiss Finance Institute)

  • Florian Pelgrin

    (University of Lausanne and CIRANO)

  • Pascal St-Amour

    (University of Lausanne, Swiss Finance Institute, CIRANO and CIRPEE)

The empirical literature on the asset allocation and medical expenditures of U.S. households consistently shows that risky portfolio shares are increasing in both wealth and health whereas health investment shares are decreasing in these same variables. Despite this evidence, most of the existing models treat financial and health-related choices separately. This paper bridges this gap by proposing a tractable framework for the joint determination of optimal consumption, portfolio and health investments. We solve for the optimal rules in closed form and show that the model can theoretically reproduce the empirical facts. Capitalizing on this closed-form solution, we perform a structural estimation of the model on HRS data. Our parameter estimates are reasonable and confirm the relevance of all the main characteristics of the model.

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File URL: http://ssrn.com/abstract=1417364
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Paper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 09-18.

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Length: 68 pages
Date of creation: May 2009
Date of revision:
Handle: RePEc:chf:rpseri:rp0918
Contact details of provider: Web page: http://www.SwissFinanceInstitute.ch

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