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Closing Down the Shop: Optimal Health and Wealth Dynamics Near the End of Life

Author

Listed:
  • Julien Hugonnier

    (Ecole Polytechnique Fédérale de Lausanne and Swiss Finance Institute)

  • Florian Pelgrin

    (EDHEC Business School)

  • Pascal St-Amour

    (University of Lausanne and Swiss Finance Institute)

Abstract

Near the end of life, health declines, mortality risk increases and curative is replaced by uninsured long-term care, accelerating the fall in wealth. Whereas standard explanations emphasize inevitable aging processes, we propose a com- plementary closing down the shop justification where agents’ decisions affect their health and the timing of death. Despite preferring to live, individuals optimally deplete their health and wealth towards levels associated with high death risk and indifference between life and death. Reinstating exogenous aging processes reinforces the relevance of closing down. Using HRS data for elders, a structural estimation of the closed-form decisions identifies and tests conditions for these strategies to be optimal and confirm their economic relevance. We also discuss why policy intervention to reduce the incidence of closing down, although feasible, is not warranted.

Suggested Citation

  • Julien Hugonnier & Florian Pelgrin & Pascal St-Amour, 2017. "Closing Down the Shop: Optimal Health and Wealth Dynamics Near the End of Life," Swiss Finance Institute Research Paper Series 17-11, Swiss Finance Institute, revised May 2018.
  • Handle: RePEc:chf:rpseri:rp1711
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    File URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2938545
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    More about this item

    Keywords

    End of life; Life cycle; Dis-savings; Endogenous mortality risk; Unmet medical needs; Right to refuse treatment;
    All these keywords.

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior

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