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The Lifetime Costs of Bad Health

Author

Listed:
  • Mariacristina De Nardi

    (University College London / Federal Reserve Bank of Chicago / IFS / NBER)

  • Svetlana Pashchenko

    (University of Georgia)

  • Ponpoje Porapakkarm

    (National Graduate Institute for Policy Studies)

Abstract

Health shocks are an important source of risk. People in bad health work less, earn less, face higher medical expenses, die earlier, and accumulate much less wealth compared to those in good health. Importantly, the dynamics of health are much richer than those implied by a low-order Markov process. We first show that these dynamics can be parsimoniously captured by a combination of some lag-dependence and ex-ante heterogeneity, or health types. We then study the effects of health shocks in a structural life-cycle model with incomplete markets. Our estimated model reproduces the observed inequality in economic outcomes by health status, including the income-health and wealth-health gradients. Our model has several implications concerning the pecuniary and non-pecuniary effects of health shocks over the life-cycle. The (monetary) lifetime costs of bad health are very concentrated and highly unequally distributed across health types, with the largest component of these costs being the loss in labor earnings. The non-pecuniary effects of health are very important along two dimensions. First, individuals value good health mostly because it extends life expectancy. Second, health uncertainty substantially increases lifetime inequality by affecting the variation in lifespans.

Suggested Citation

  • Mariacristina De Nardi & Svetlana Pashchenko & Ponpoje Porapakkarm, 2017. "The Lifetime Costs of Bad Health," Working Papers 2017-079, Human Capital and Economic Opportunity Working Group.
  • Handle: RePEc:hka:wpaper:2017-079
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The Lifetime Costs of Bad Health
      by Christian Zimmermann in NEP-DGE blog on 2017-11-18 02:31:32

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    Cited by:

    1. Julien Albertini & Xavier Fairise & Anthony Terriau, 2020. "Health, wealth, and informality over the life cycle," Working Papers halshs-02447426, HAL.
    2. Moser, Christian & Olea de Souza e Silva, Pedro, 2019. "Optimal Paternalistic Savings Policies," MPRA Paper 95383, University Library of Munich, Germany.
    3. Margherita Borella & Mariacristina De Nardi & Fang Yang, 2019. "“The lost ones: the opportunities and outcomes of non-college-educated Americans born in the 1960s”," CeRP Working Papers 188, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    4. Jack Britton & Eric French, 2020. "Health and Employment amongst Older Workers," Fiscal Studies, John Wiley & Sons, vol. 41(1), pages 221-250, March.
    5. Mommaerts, Corina & Raza, Syed Hassan & Zheng, Yu, 2020. "The economic consequences of hospitalizations for older workers across countries," The Journal of the Economics of Ageing, Elsevier, vol. 16(C).
    6. Richard Blundell & Jack Britton & Monica Costa Dias & Eric French, 2017. "The impact of health on labour supply near retirement," IFS Working Papers W17/18, Institute for Fiscal Studies.
    7. Svetlana Pashchenko & Ponpoje Porapakkarm, 2019. "Accounting for Social Security Claiming Behavior," Working Papers 2019-068, Human Capital and Economic Opportunity Working Group.
    8. Margherita Borella & Mariacristina De Nardi & Fang Yang, 2020. "The Lost Ones: The Opportunities and Outcomes of White, Non-College-Educated Americans Born in the 1960s," NBER Macroeconomics Annual, University of Chicago Press, vol. 34(1), pages 67-115.
    9. Margherita Borella & Mariacristina De Nardi & Fang Yang, 2019. "Are Marriage-Related Taxes and Social Security Benefits Holding Back Female Labor Supply?," NBER Working Papers 26097, National Bureau of Economic Research, Inc.
    10. Juergen Jung & Chung Tran, 2018. "Optimal Progressive Income Taxation in a Bewley-Grossman Framework," ANU Working Papers in Economics and Econometrics 2018-662, Australian National University, College of Business and Economics, School of Economics.
    11. Juan Carlos Conesa & Bo Li & Qian Li, 2020. "Universal Basic Income and Progressive Consumption Taxes," Department of Economics Working Papers 20-01, Stony Brook University, Department of Economics.
    12. Wouterse, B.; & Hussem, A.; & Wong, A.;, 2018. "The effect of co-payments in Long Term Care on the distribution of payments,consumption, and risk," Health, Econometrics and Data Group (HEDG) Working Papers 18/24, HEDG, c/o Department of Economics, University of York.
    13. Margherita Borella & Fang Yang & Mariacristina De Nardi, 2019. "The changing opportunities and outcomes of non-college educated Americans," 2019 Meeting Papers 206, Society for Economic Dynamics.
    14. Juergen Jung & Chung Tran, 2017. "Health Risk, Insurance and Optimal Progressive Income Taxation," Working Papers 2017-01, Towson University, Department of Economics, revised Mar 2020.
    15. Umesh Ghimire, 2020. "The Impact of Health on Wealth: Empirical Evidence," Working papers 2020-19, University of Connecticut, Department of Economics.
    16. Mariacristina De Nardi & Giulio Fella, 2017. "Saving and Wealth Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 280-300, October.
    17. Mr. Nicola Pierri & Adelina Yanyue Wang & Anne-Line Koch Helsø, 2019. "The Economic Impact of Healthcare Quality," IMF Working Papers 2019/173, International Monetary Fund.
    18. Siddhartha Sanghi, 2019. "Health Inequality: Role of Insurance and Technological Progress," 2019 Meeting Papers 703, Society for Economic Dynamics.
    19. Owen (O.A.) O'Donnell, 2019. "Financial Protection Against Medical Expense," Tinbergen Institute Discussion Papers 19-010/V, Tinbergen Institute.

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    More about this item

    Keywords

    Health; health insurance; medical spending; wealth-health gradient; life-cycle model;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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