IDEAS home Printed from https://ideas.repec.org/p/hka/wpaper/2022-009.html
   My bibliography  Save this paper

Human-Capital Formation: The Importance of Endogenous Longevity

Author

Listed:
  • Titus Galama

    (University of Southern California)

  • Hans van Kippersluis

    (Erasmus University)

Abstract

We present a theory of human capital, with its two most essential components, health capital and, what we term, skill capital, endogenously determined within the model. Using the theory, and a calibrated version of it, we uncover and highlight an important economic mechanism driving human-capital formation, socio-economic and health disparities, human-capital based economic growth, and causal relations among the stocks of wealth, skill and health, namely whether individuals can influence their own length of life (endogenous longevity). Without the ability of individuals to influence their longevity, the effects of health, skill and wealth on later-life skill and health are muted. Any additional health, skill or wealth is not used for additional investment, but essentially consumed. These findings have important implications for the modeling of, and our understanding of, human-capital formation, disparities in human capital and health, and human-capital based economic growth.

Suggested Citation

  • Titus Galama & Hans van Kippersluis, 2022. "Human-Capital Formation: The Importance of Endogenous Longevity," Working Papers 2022-009, Human Capital and Economic Opportunity Working Group.
    • Handle: RePEc:hka:wpaper:2022-009
    Note: HI
    as

    Download full text from publisher

    File URL: http://humcap.uchicago.edu/RePEc/hka/wpaper/Galama_vanKippersluis_2022_human-capital-formation-endogenous-longevity.pdf
    File Function: March 23, 2022
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jane G Fortson, 2011. "Mortality Risk and Human Capital Investment: The Impact of HIV/AIDS in Sub-Saharan Africa," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 1-15, February.
    2. Matteo Cervellati & Uwe Sunde, 2011. "Life expectancy and economic growth: the role of the demographic transition," Journal of Economic Growth, Springer, vol. 16(2), pages 99-133, June.
    3. Ofer Malamud & Cristian Pop-Eleches & Miguel Urquiola, 2016. "Interactions Between Family and School Environments: Evidence on Dynamic Complementarities?," NBER Working Papers 22112, National Bureau of Economic Research, Inc.
    4. Daron Acemoglu & David Autor, 2012. "What Does Human Capital Do? A Review of Goldin and Katz's The Race between Education and Technology," Journal of Economic Literature, American Economic Association, vol. 50(2), pages 426-463, June.
    5. Matteo Cervellati & Uwe Sunde, 2013. "Life Expectancy, Schooling, and Lifetime Labor Supply: Theory and Evidence Revisited," Econometrica, Econometric Society, vol. 81(5), pages 2055-2086, September.
    6. Rucker C. Johnson & C. Kirabo Jackson, 2019. "Reducing Inequality through Dynamic Complementarity: Evidence from Head Start and Public School Spending," American Economic Journal: Economic Policy, American Economic Association, vol. 11(4), pages 310-349, November.
    7. James J. Heckman & John Eric Humphries & Gregory Veramendi, 2018. "Returns to Education: The Causal Effects of Education on Earnings, Health, and Smoking," Journal of Political Economy, University of Chicago Press, vol. 126(S1), pages 197-246.
    8. Gordon B. Dahl & Lance Lochner, 2012. "The Impact of Family Income on Child Achievement: Evidence from the Earned Income Tax Credit," American Economic Review, American Economic Association, vol. 102(5), pages 1927-1956, August.
    9. Caputo,Michael R., 2005. "Foundations of Dynamic Economic Analysis," Cambridge Books, Cambridge University Press, number 9780521842723.
    10. Elizabeth M. Caucutt & Lance Lochner, 2020. "Early and Late Human Capital Investments, Borrowing Constraints, and the Family," Journal of Political Economy, University of Chicago Press, vol. 128(3), pages 1065-1147.
    11. Damon Clark & Heather Royer, 2013. "The Effect of Education on Adult Mortality and Health: Evidence from Britain," American Economic Review, American Economic Association, vol. 103(6), pages 2087-2120, October.
    12. Li-Shiun Chen & Ping Wang & Yao Yao, 2017. "Smoking, Health Capital, and Longevity: Evaluation of Personalized Cessation Treatments in a Lifecycle Model with Heterogeneous Agents," NBER Working Papers 23820, National Bureau of Economic Research, Inc.
    13. Achyuta Adhvaryu & Teresa Molina & Anant Nyshadham & Jorge Tamayo, 2023. "Helping Children Catch Up: Early Life Shocks and the PROGRESA Experiment," The Economic Journal, Royal Economic Society, vol. 134(657), pages 1-22.
    14. Guido W. Imbens & Donald B. Rubin & Bruce I. Sacerdote, 2001. "Estimating the Effect of Unearned Income on Labor Earnings, Savings, and Consumption: Evidence from a Survey of Lottery Players," American Economic Review, American Economic Association, vol. 91(4), pages 778-794, September.
    15. Amy Finkelstein & Erzo F. P. Luttmer & Matthew J. Notowidigdo, 2013. "What Good Is Wealth Without Health? The Effect Of Health On The Marginal Utility Of Consumption," Journal of the European Economic Association, European Economic Association, vol. 11, pages 221-258, January.
    16. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, March.
    17. Kalemli-Ozcan, Sebnem & Ryder, Harl E. & Weil, David N., 2000. "Mortality decline, human capital investment, and economic growth," Journal of Development Economics, Elsevier, vol. 62(1), pages 1-23, June.
    18. Patricia Andreski & Geng Li & Mehmet Zahid Samancioglu & Robert Schoeni, 2014. "Estimates of Annual Consumption Expenditures and Its Major Components in the PSID in Comparison to the CE," American Economic Review, American Economic Association, vol. 104(5), pages 132-135, May.
    19. repec:mpr:mprres:6928 is not listed on IDEAS
    20. Titus J Galama & Hans van Kippersluis, 2019. "A Theory of Socio-economic Disparities in Health over the Life Cycle," The Economic Journal, Royal Economic Society, vol. 129(617), pages 338-374.
    21. Victor R. Fuchs, 2018. "The New Demographic Transition: Most Gains in Life Expectancy Now Realized Late in Life," World Scientific Book Chapters, in: Health Economics and Policy Selected Writings by Victor Fuchs, chapter 32, pages 379-401, World Scientific Publishing Co. Pte. Ltd..
    22. Graham, John W, 1981. "An Explanation for the Correlation of Stocks of Nonhuman Capital with Investment in Human Capital," American Economic Review, American Economic Association, vol. 71(1), pages 248-255, March.
    23. Titus J. Galama & Hans van Kippersluis, 2013. "Health Inequalities through the Lens of Health Capital Theory: Issues, Solutions, and Future Directions," Tinbergen Institute Discussion Papers 13-076/V, Tinbergen Institute.
    24. Serdula, M.K. & Gillespie, C. & Kettel-Khan, L. & Farris, R. & Seymour, J. & Denny, C., 2004. "Trends in fruit and vegetable consumption among adults in the United States: Behavioral risk factor surveillance system, 1994-2000," American Journal of Public Health, American Public Health Association, vol. 94(6), pages 1014-1018.
    25. Donna Gilleskie & Euna Han & Edward Norton, 2017. "Disentangling the Contemporaneous and Dynamic Effects of Human and Health Capital on Wages over the Life Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 25, pages 350-383, April.
    26. Lance, Lochner, 2011. "Nonproduction Benefits of Education," Handbook of the Economics of Education, in: Erik Hanushek & Stephen Machin & Ludger Woessmann (ed.), Handbook of the Economics of Education, edition 1, volume 4, chapter 0, pages 183-282, Elsevier.
    27. Heckman, James J. & Lochner, Lance J. & Todd, Petra E., 2006. "Earnings Functions, Rates of Return and Treatment Effects: The Mincer Equation and Beyond," Handbook of the Economics of Education, in: Erik Hanushek & F. Welch (ed.), Handbook of the Economics of Education, edition 1, volume 1, chapter 7, pages 307-458, Elsevier.
    28. Boucekkine, Raouf & de la Croix, David & Licandro, Omar, 2002. "Vintage Human Capital, Demographic Trends, and Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 104(2), pages 340-375, June.
    29. Ehrlich, Isaac & Chuma, Hiroyuki, 1990. "A Model of the Demand for Longevity and the Value of Life Extension," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 761-782, August.
    30. David Cesarini & Erik Lindqvist & Robert Östling & Björn Wallace, 2016. "Wealth, Health, and Child Development: Evidence from Administrative Data on Swedish Lottery Players," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(2), pages 687-738.
    31. David Cutler & Grant Miller, 2005. "The role of public health improvements in health advances: The twentieth-century United States," Demography, Springer;Population Association of America (PAA), vol. 42(1), pages 1-22, February.
    32. Titus J. Galama & Adriana Lleras-Muney & Hans van Kippersluis, 2018. "The Effect of Education on Health and Mortality: A Review of Experimental and Quasi-Experimental Evidence," NBER Working Papers 24225, National Bureau of Economic Research, Inc.
    33. Card, David, 2001. "Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems," Econometrica, Econometric Society, vol. 69(5), pages 1127-1160, September.
    34. Jacob A. Mincer, 1974. "Schooling and Earnings," NBER Chapters, in: Schooling, Experience, and Earnings, pages 41-63, National Bureau of Economic Research, Inc.
    35. Owen O'Donnell & Eddy Van Doorslaer & Tom Van Ourti, 2013. "Health and Inequality," Tinbergen Institute Discussion Papers 13-170/V, Tinbergen Institute.
    36. Daron Acemoglu & Simon Johnson, 2007. "Disease and Development: The Effect of Life Expectancy on Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 115(6), pages 925-985, December.
    37. Matteo Cervellati & Uwe Sunde, 2005. "Human Capital Formation, Life Expectancy, and the Process of Development," American Economic Review, American Economic Association, vol. 95(5), pages 1653-1672, December.
    38. Maryaline Catillon & David Cutler & Thomas Getzen, 2018. "Two Hundred Years of Health and Medical Care: The Importance of Medical Care for Life Expectancy Gains," NBER Working Papers 25330, National Bureau of Economic Research, Inc.
    39. David A. Wise, 2005. "Analyses in the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise05-1, March.
    40. Stefano DellaVigna, 2018. "Structural Behavioral Economics," NBER Working Papers 24797, National Bureau of Economic Research, Inc.
    41. Seema Jayachandran & Adriana Lleras-Muney, 2009. "Life Expectancy and Human Capital Investments: Evidence from Maternal Mortality Declines," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(1), pages 349-397.
    42. Maya Rossin-Slater & Miriam Wüst, 2020. "What Is the Added Value of Preschool for Poor Children? Long-Term and Intergenerational Impacts and Interactions with an Infant Health Intervention," American Economic Journal: Applied Economics, American Economic Association, vol. 12(3), pages 255-286, July.
    43. John Karl Scholz & Ananth Seshadri, 2016. "The Interaction between Consumption and Health in Retirement," Working Papers wp344, University of Michigan, Michigan Retirement Research Center.
    44. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 11-44, August.
    45. Friedrich Breyer & Joan Costa-Font & Stefan Felder, 2010. "Ageing, health, and health care," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 26(4), pages 674-690, Winter.
    46. David A. Wise, 2011. "Explorations in the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise09-2, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Maria Klonowska-Matynia, 2022. "Human Capital as a Source of Energy for Rural Areas’ Socio-Economic Development—Empirical Evidence for Rural Areas in Poland," Energies, MDPI, vol. 15(21), pages 1-31, November.
    2. Michael Grossman, 2022. "The demand for health turns 50: Reflections," Health Economics, John Wiley & Sons, Ltd., vol. 31(9), pages 1807-1822, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Titus J. Galama & Hans van Kippersluis, 2015. "A Theory of Education and Health," CINCH Working Paper Series 1503, Universitaet Duisburg-Essen, Competent in Competition and Health, revised Mar 2015.
    2. Titus J Galama & Hans van Kippersluis, 2019. "A Theory of Socio-economic Disparities in Health over the Life Cycle," The Economic Journal, Royal Economic Society, vol. 129(617), pages 338-374.
    3. Bloom, David E. & Kuhn, Michael & Prettner, Klaus, 2018. "Health and Economic Growth," IZA Discussion Papers 11939, Institute of Labor Economics (IZA).
    4. Holger Strulik & Katharina Werner, 2016. "50 is the new 30—long-run trends of schooling and retirement explained by human aging," Journal of Economic Growth, Springer, vol. 21(2), pages 165-187, June.
    5. Sánchez-Romero, Miguel & d׳Albis, Hippolyte & Prskawetz, Alexia, 2016. "Education, lifetime labor supply, and longevity improvements," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 118-141.
    6. Strulik, Holger & Werner, Katharina, 2014. "Elite education, mass education, and the transition to modern growth," University of Göttingen Working Papers in Economics 205, University of Goettingen, Department of Economics.
    7. Cohen, Daniel & Leker, Laura, 2014. "Health and Education: Another Look with the Proper Data," CEPR Discussion Papers 9940, C.E.P.R. Discussion Papers.
    8. David E. Bloom & Michael Kuhn & Klaus Prettner, 2022. "Modern Infectious Diseases: Macroeconomic Impacts and Policy Responses," Journal of Economic Literature, American Economic Association, vol. 60(1), pages 85-131, March.
    9. Akira Momota, 2022. "Long lifespan and optimal recurrent education," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(2), pages 1193-1222, May.
    10. repec:got:cegedp:141 is not listed on IDEAS
    11. Strulik, Holger & Werner, Katharina, 2012. "Life Expectancy, Labor Supply, and Long-Run Growth: Reconciling Theory and Evidence," Hannover Economic Papers (HEP) dp-497, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    12. Hoque,Mohammad Mainul & King,Elizabeth M. & Montenegro,Claudio E. & Orazem,Peter F., 2017. "Longevity and lifetime education : global evidence from 919 surveys," Policy Research Working Paper Series 8175, The World Bank.
    13. Tscheuschner, Paul, 2021. "Endogenous life expectancy and R&D-based economic growth," Hohenheim Discussion Papers in Business, Economics and Social Sciences 01-2021, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    14. Nuarpear Lekfuangfu, 2016. "Mortality Risk and Human Capital Investment: The Legacy of Landmines in Cambodia," PIER Discussion Papers 35., Puey Ungphakorn Institute for Economic Research, revised Jul 2016.
    15. Nuarpear Lekfuangfu, 2016. "Mortality Risk and Human Capital Investment: The Legacy of Landmines in Cambodia," PIER Discussion Papers 35, Puey Ungphakorn Institute for Economic Research.
    16. Keiya Minamimura & Daisihin Yasui, 2019. "From Physical to Human Capital Accumulation: Effects of Mortality Changes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 34, pages 103-120, October.
    17. Annarita BALDANZI & Alberto BUCCI & Klaus PRETTNER, 2016. "The Effects of Health Investments on Human Capital and R&D-Driven Economic Growth," Departmental Working Papers 2016-17, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    18. Gilles Le Garrec & Stéphane Lhuissier, 2011. "Life expectancy, heavy work and the return to education: lessons for the social security reform," SciencePo Working papers Main hal-01069511, HAL.
    19. Bloom, David E. & Canning, David & Kotschy, Rainer & Prettner, Klaus & Schünemann, Johannes, 2024. "Health and economic growth: Reconciling the micro and macro evidence," World Development, Elsevier, vol. 178(C).
    20. Strulik, Holger, 2022. "A health economic theory of occupational choice, aging, and longevity," Journal of Health Economics, Elsevier, vol. 82(C).

    More about this item

    Keywords

    health investment; education; human capital; health capital; dynamic optimal control; longevity;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I10 - Health, Education, and Welfare - - Health - - - General
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • J00 - Labor and Demographic Economics - - General - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hka:wpaper:2022-009. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jennifer Pachon (email available below). General contact details of provider: https://edirc.repec.org/data/mfichus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.