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The Lifetime Costs of Bad Health

Author

Listed:
  • Svetlana Pashchenko

    (University of Georgia)

  • Ponpoje (Poe) Porapakkarm

    (National Graduate Institute for Policy Studies (GRIPS,Tokyo))

  • Mariacristina De Nardi

    (Federal Reserve Bank of Chicago)

Abstract

How costly is bad health and what makes good health valuable over the life cycle? Answering these questions requires carefully modeling health dynamics, including in the longer run, and a rich model of how health can affect households. We estimate a health shock process that allows for both history-dependence and ex-ante heterogeneity, and we introduce it in a rich life-cycle model that we estimate and that matches three sets of important facts: (i) The dynamics of health; (ii) The quantitative impact of bad health on labor earnings, medical spending, and life expectancy; (iii) The large disparity in accumulated wealth between the healthy and the unhealthy at retirement. We find that the costs of bad health among the working age population are steeply increasing in the number of years spent unhealthy and that the largest component of these costs is the loss in labor earnings. In contrast, the effect of out-of-pocket medical spending is relatively small. To also evaluate the non-pecuniary effects of health, we evaluate the willingness to pay to be healthy and we find that the most valuable aspect of being healthy is a longer life expectancy

Suggested Citation

  • Svetlana Pashchenko & Ponpoje (Poe) Porapakkarm & Mariacristina De Nardi, 2017. "The Lifetime Costs of Bad Health," 2017 Meeting Papers 533, Society for Economic Dynamics.
  • Handle: RePEc:red:sed017:533
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. repec:red:issued:16-340 is not listed on IDEAS
    3. 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.

    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality

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