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Health-Related Life Cycle Risks and Public Insurance

  • Daniel Kemptner

This paper proposes a dynamic life cycle model of health risks, employment, early retirement, and wealth accumulation in order to analyze the health-related risks of consumption and old age poverty. In particular, the model includes a health process, the interaction between health and employment risks, and an explicit modeling of the German public insurance schemes. I rely on a dynamic programming discrete choice framework and estimate the model using data from the German Socio-Economic Panel. I quantify the health-related life cycle risks by simulating scenarios where health shocks do or do not occur at different points in the life cycle for individuals with differing endowments. Moreover, a policy simulation investigates minimum pension benefits as an insurance against old age poverty. While such a reform raises a concern about an increase in abuse of the early retirement option, the simulations indicate that a means test mitigates the moral hazard problem substantially.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.426032.de/dp1320.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1320.

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Length: 36 p.
Date of creation: 2013
Date of revision:
Handle: RePEc:diw:diwwpp:dp1320
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  14. Nicola Fuchs-Schündeln & Matthias Schündeln, 2005. "Precautionary Savings and Self-Selection: Evidence from the German Reunification "Experiment"," The Quarterly Journal of Economics, MIT Press, vol. 120(3), pages 1085-1120, August.
  15. Nicola Fuchs-Schündeln, 2008. "The Response of Household Saving to the Large Shock of German Reunification," Working Papers, Center for Retirement Research at Boston College wp2008-21, Center for Retirement Research, revised Dec 2008.
  16. Haan, Peter & Myck, Michal, 2009. "Dynamics of health and labor market risks," Journal of Health Economics, Elsevier, vol. 28(6), pages 1116-1125, December.
  17. Kemptner, Daniel & Jürges, Hendrik & Reinhold, Steffen, 2011. "Changes in compulsory schooling and the causal effect of education on health: Evidence from Germany," Journal of Health Economics, Elsevier, vol. 30(2), pages 340-354, March.
  18. Jeffrey M. Wooldridge, 2005. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(1), pages 39-54.
  19. Hugo Benitez-Silva & Huan Ni, 2005. "Health Status and Health Dynamics in an Empirical Model of Expected Longevity," Department of Economics Working Papers 05-14, Stony Brook University, Department of Economics.
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