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Health-Related Life Cycle Risks and Public Insurance

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  • Daniel Kemptner

Abstract

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.

Suggested Citation

  • Daniel Kemptner, 2013. "Health-Related Life Cycle Risks and Public Insurance," Discussion Papers of DIW Berlin 1320, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp1320
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. #HEJC papers for September 2013
      by academichealtheconomists in The Academic Health Economists' Blog on 2013-09-01 04:01:38

    Citations

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    Cited by:

    1. Eric French & John Bailey Jones, 2017. "Health, Health Insurance, and Retirement: A Survey," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 383-409, September.
    2. Tobias Laun & Johanna Wallenius, 2016. "Social Insurance and Retirement: A Cross-Country Perspective," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 22, pages 72-92, October.
    3. Laun, Tobias & Markussen, Simen & Vigtel, Trond Christian & Wallenius, Johanna, 2018. "Health, Longevity and Pension Reform," Working Paper Series 2018:9, Uppsala University, Department of Economics.

    More about this item

    Keywords

    Dynamic programming; discrete choice; health; employment; early retirement; consumption; tax and transfer system;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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