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Health and Wealth in a Life Cycle Model

Author

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  • John Karl Scholz

    (University of Wisconsin-Madison)

  • Ananth Seshadri

    (University of Wisconsin-Madison)

Abstract

This paper presents a preliminary model of health investments over the life cycle. Health affects both longevity and provides flow utility. We analyze the interplay between consumption choices and investments in health by solving each household’s dynamic optimization problem to obtain predictions on health investments and consumption choices over the lifecycle. Our preliminary model does a good job of matching the distribution of medical expenses across households in the sample. We illustrate the scope of future model applications by examining the effects of a stylized Medicare program on patterns of wealth and mortality.

Suggested Citation

  • John Karl Scholz & Ananth Seshadri, 2010. "Health and Wealth in a Life Cycle Model," Working Papers wp224, University of Michigan, Michigan Retirement Research Center.
    • Handle: RePEc:mrr:papers:wp224
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    References listed on IDEAS

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    1. 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.
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    3. David Card & Carlos Dobkin & Nicole Maestas, 2009. "Does Medicare Save Lives?," The Quarterly Journal of Economics, Oxford University Press, vol. 124(2), pages 597-636.
    4. Yogo, Motohiro, 2016. "Portfolio choice in retirement: Health risk and the demand for annuities, housing, and risky assets," Journal of Monetary Economics, Elsevier, vol. 80(C), pages 17-34.
    5. Tatyana Koreshkova & Karen A. Kopecky, 2009. "The Impact of Medical and Nursing Home Expenses and Social Insurance Policies on Savings and Inequality," 2009 Meeting Papers 46, Society for Economic Dynamics.
    6. Mariacristina De Nardi & Eric French & John B. Jones, 2010. "Why Do the Elderly Save? The Role of Medical Expenses," Journal of Political Economy, University of Chicago Press, vol. 118(1), pages 39-75, February.
    7. Finkelstein, Amy & McKnight, Robin, 2008. "What did Medicare do? The initial impact of Medicare on mortality and out of pocket medical spending," Journal of Public Economics, Elsevier, vol. 92(7), pages 1644-1668, July.
    8. Fonseca, Raquel & Michaud, Pierre-Carl & Galama, Titus & Kapteyn, Arie, 2009. "On The Rise of Health Spending and Longevity," IZA Discussion Papers 4622, Institute of Labor Economics (IZA).
    9. Fonseca, Raquel & Michaud, Pierre-Carl & Galama, Titus & Kapteyn, Arie, 2009. "On The Rise of Health Spending and Longevity," IZA Discussion Papers 4622, Institute for the Study of Labor (IZA).
    10. Gouveia, Miguel & Strauss, Robert P., 1994. "Effective Federal Individual Tax Functions: An Exploratory Empirical Analysis," National Tax Journal, National Tax Association;National Tax Journal, vol. 47(2), pages 317-339, June.
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    Cited by:

    1. SØren Leth‐Petersen & Niels Skipper, 2014. "Income And The Use Of Prescription Drugs For Near Retirement Individuals," Health Economics, John Wiley & Sons, Ltd., vol. 23(3), pages 314-331, March.
    2. Pashchenko, Svetlana, 2013. "Accounting for non-annuitization," Journal of Public Economics, Elsevier, vol. 98(C), pages 53-67.
    3. Carbone, Jared C. & Kverndokk, Snorre, 2014. "Individual investments in education and health," HERO Online Working Paper Series 2014:1, University of Oslo, Health Economics Research Programme.

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