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Optimal Choice of Health and Retirement in a Life-Cycle Model

  • Kuhn, Michael
  • Wrzaczek, Stefan
  • Prskawetz, Alexia
  • Feichtinger, Gustav

We examine within a life-cycle set-up the choice of health and retirement. Health care contributes to a reduction in both mortality, determining the need to accumulate retirement wealth, and in morbidity, determining the disutility of work. The retirement age affects health through the value of survival and the value of morbidity reductions. We compare the allocation for a first-best setting where the individual can transfer wealth freely within a perfect annuity market with a second-best set-up with an incentive incompatible (yet actuarially fair) retirement scheme and an imperfect annuity market and show how the inefficiencies shape the health-retirement nexus.

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Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis with number 48681.

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Date of creation: 2011
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Handle: RePEc:zbw:vfsc11:48681
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