Health Investment over the Life-Cycle
We study quantitatively what drives the rise in medical expenditures over the life-cycle. Two motives are considered. First, health delivers a flow of utility each period. Second, better health enables people to allocate more time to productive or pleasurable activities. We calibrate a model of endogenous health accumulation to match key economic targets and gauge its performance by comparing consumption, labor supply, and medical expenditure profiles from the model to their counterparts in the data. The precipitous rise in medical expenditures that occurs late in life is primarily driven by the value of health as a consumption good, not an investment good. This conclusion is robust to different specifications of health investment motives and preferences.
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199703-R, University of Hawaii at Manoa, Department of Economics.
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