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A structural analysis of the health expenditures and portfolio choices of retired agents

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  • Julien Hugonnier

    (Ecole Polytechnique Fédérale de Lausanne and Swiss Finance Institute)

  • Florian Pelgrin

    (University of Lausanne and CIRANO)

  • Pascal St-Amour

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

Abstract

Richer and healthier agents tend to hold riskier portfolios and spend proportionally less on health expenditures. Potential explanations include health and wealth effects on preferences, expected longevity or disposable total wealth. Using HRS data, we perform a structural estimation of a dynamic model of consumption, portfolio and health expenditure choices with recursive utility, as well as health-dependent income and mortality risk. Our estimates of the deep parameters highlight the importance of health capital, mortality risk control, convex health and mortality adjustment costs and binding liquidity constraints to rationalize the stylized facts. They also provide new perspectives on expected longevity and on the values of life and health.

Suggested Citation

  • Julien Hugonnier & Florian Pelgrin & Pascal St-Amour, 2010. "A structural analysis of the health expenditures and portfolio choices of retired agents," Swiss Finance Institute Research Paper Series 10-29, Swiss Finance Institute.
  • Handle: RePEc:chf:rpseri:rp1029
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    More about this item

    Keywords

    Asset allocation; Expected lifetime; Health production function; Mortality risk; Recursive utility; Value of health; Value of life;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior

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