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Closing Down the Shop: Optimal Health and Wealth Dynamics near the End of Life

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  • Hugonnier, J.
  • Pelgrin, F.
  • St-Amour, P.

Abstract

The observed health decline near the end of life coincides with less curative (e.g. hospital stay, doctor visits), and more comfort (e.g. nursing home) care, which accelerate both the fall in wealth, and the timing of death. We investigate whether these dynamics jointly result from a closing down the shop decision i.e. a depletion of the health stock is optimally selected (and eventually accelerated), leading to states characterized by indifference between life, and death. Towards that aim, we expand, structurally estimate, and simulate a life cycle model of financial,and health expenses with endogenous mortality exposure (Hugonnier et al., 2013). Under economically plausible, and statistically verified conditions, we find that, unless sufficiently rich and healthy, agents will optimally select expected depletion of their health capital, and associated increase in death likelihood. Moreover, we identify a wealth and health locus below which agents accelerate their health depletion. Importantly, wealth is also expected to decline for all, such that all surviving agents eventually enter the closing down phase.

Suggested Citation

  • Hugonnier, J. & Pelgrin, F. & St-Amour, P., 2016. "Closing Down the Shop: Optimal Health and Wealth Dynamics near the End of Life," Health, Econometrics and Data Group (HEDG) Working Papers 16/28, HEDG, c/o Department of Economics, University of York.
  • Handle: RePEc:yor:hectdg:16/28
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    More about this item

    Keywords

    End of life; Life cycle; Dis-savings; Endogenous mortality risk; Unmet medical needs; Right to refuse treatment;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior

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