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Health Investment over the Life-Cycle

  • Halliday, Timothy J.

    ()

    (University of Hawaii at Manoa)

  • He, Hui

    ()

    (University of Hawaii at Manoa)

  • Zhang, Hao

    ()

    (University of Hawaii at Manoa)

We study the evolution of health investment over the life-cycle by calibrating a model of endogenous health accumulation. The model is able to produce the decline in labor supply with age as well as the hump-shaped consumption profile. In both cases, health and health investment play a crucial role as the former encroaches upon healthy time and the latter crowds out non-medical expenditures as people age. Finally, we quantify the value of health as both an investment and a consumption good. We show that the investment motive is about three times higher than the consumption motive during the early 20s, but decreases over the life-cycle until it disappears at retirement. In contrast, the consumption motive increases with age and surpasses the investment motive during the mid 40s.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4482.

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Length: 51 pages
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:iza:izadps:dp4482
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