IDEAS home Printed from https://ideas.repec.org/p/zbw/vfsc16/145571.html
   My bibliography  Save this paper

Going from Bad to Worse: Adaptation to Poor Health, Health Spending, Longevity, and the Value of Life

Author

Listed:
  • Schünemann, Johannes
  • Strulik, Holger
  • Trimborn, Timo

Abstract

Unhealthy persons adapt to their bad state of health and persons in bad health are usually happier than estimated by healthy persons. In this paper we investigate how adaptation to a deteriorating state of health affects health spending, life expectancy, and the value of life. We set up a life cycle model in which individuals are subject to physiological aging, calibrate it with data from gerontology, and compare behavior and outcomes of adapting and non-adapting individuals. While adaptation generally increases the life-time utility (by about 2 percent), its impact on health behavior and longevity depends crucially on whether individuals are aware of their adaptive behavior, i.e. whether they adapt in a naive or sophisticated way. We also compute the QALY change implied by health shocks and discuss whether and how adaptation influences results and the desireability of positive health innovations.

Suggested Citation

  • Schünemann, Johannes & Strulik, Holger & Trimborn, Timo, 2016. "Going from Bad to Worse: Adaptation to Poor Health, Health Spending, Longevity, and the Value of Life," Annual Conference 2016 (Augsburg): Demographic Change 145571, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc16:145571
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/145571/1/VfS_2016_pid_6426.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Amy Finkelstein & Erzo F. P. Luttmer & Matthew J. Notowidigdo, 2009. "Approaches to Estimating the Health State Dependence of the Utility Function," American Economic Review, American Economic Association, vol. 99(2), pages 116-121, May.
    2. Graham, Liam & Oswald, Andrew J., 2010. "Hedonic capital, adaptation and resilience," Journal of Economic Behavior & Organization, Elsevier, vol. 76(2), pages 372-384, November.
    3. Anne Case & Angus S. Deaton, 2005. "Broken Down by Work and Sex: How Our Health Declines," NBER Chapters, in: Analyses in the Economics of Aging, pages 185-212, National Bureau of Economic Research, Inc.
    4. Barro, Robert J & Mankiw, N Gregory & Sala-i-Martin, Xavier, 1995. "Capital Mobility in Neoclassical Models of Growth," American Economic Review, American Economic Association, vol. 85(1), pages 103-115, March.
    5. Ricardo Pagán-Rodríguez, 2010. "Onset of disability and life satisfaction: evidence from the German Socio-Economic Panel," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 11(5), pages 471-485, October.
    6. Trimborn, Timo & Koch, Karl-Josef & Steger, Thomas M., 2008. "Multidimensional Transitional Dynamics: A Simple Numerical Procedure," Macroeconomic Dynamics, Cambridge University Press, vol. 12(3), pages 301-319, June.
    7. Holger Strulik & Sebastian Vollmer, 2013. "Long-run trends of human aging and longevity," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(4), pages 1303-1323, October.
    8. Jody Overland & Christopher D. Carroll & David N. Weil, 2000. "Saving and Growth with Habit Formation," American Economic Review, American Economic Association, vol. 90(3), pages 341-355, June.
    9. Jon Gjerde & Sverre Grepperud & Snorre Kverndokk, 2005. "On adaptation and the demand for health," Applied Economics, Taylor & Francis Journals, vol. 37(11), pages 1283-1301.
    10. Raj Chetty, 2006. "A New Method of Estimating Risk Aversion," American Economic Review, American Economic Association, vol. 96(5), pages 1821-1834, December.
    11. Wagstaff, Adam, 1986. "The demand for health : Some new empirical evidence," Journal of Health Economics, Elsevier, vol. 5(3), pages 195-233, September.
    12. Carl-Johan Dalgaard & Holger Strulik, 2014. "Optimal Aging And Death: Understanding The Preston Curve," Journal of the European Economic Association, European Economic Association, vol. 12(3), pages 672-701, June.
    13. World Bank, 2015. "World Development Indicators 2015," World Bank Publications, The World Bank, number 21634.
    14. 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.
    15. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
    16. Timo Trimborn & Karl-Josef Koch & Thomas Steger, 2006. "Multi-Dimensional Transitional Dynamics: A Simple Numberical Procedure," CESifo Working Paper Series 1745, CESifo Group Munich.
    17. Angus Deaton, 2010. "Income, Aging, Health and Well-Being around the World: Evidence from the Gallup World Poll," NBER Chapters, in: Research Findings in the Economics of Aging, pages 235-263, National Bureau of Economic Research, Inc.
    18. Albrecht, Gary L. & Devlieger, Patrick J., 1999. "The disability paradox: high quality of life against all odds," Social Science & Medicine, Elsevier, vol. 48(8), pages 977-988, April.
    19. Trimborn, Timo, 2013. "Solution of continuous-time dynamic models with inequality constraints," Economics Letters, Elsevier, vol. 119(3), pages 299-301.
    20. Dolan, Paul, 2000. "The measurement of health-related quality of life for use in resource allocation decisions in health care," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 32, pages 1723-1760, Elsevier.
    21. Michael D. Hurd & Kathleen McGarry, 2002. "The Predictive Validity of Subjective Probabilities of Survival," Economic Journal, Royal Economic Society, vol. 112(482), pages 966-985, October.
    22. Lillard, Lee A & Weiss, Yoram, 1997. "Uncertain Health and Survival: Effects on End-of-Life Consumption," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(2), pages 254-268, April.
    23. Douglas Almond & Janet Currie, 2011. "Killing Me Softly: The Fetal Origins Hypothesis," Journal of Economic Perspectives, American Economic Association, vol. 25(3), pages 153-172, Summer.
    24. repec:eee:joecag:v:6:y:2015:i:c:p:5-12 is not listed on IDEAS
    25. Holger STRULIK, 2015. "A Closed-form Solution for the Health Capital Model," JODE - Journal of Demographic Economics, Cambridge University Press, vol. 81(3), pages 301-316, September.
    26. Kevin M. Murphy & Robert H. Topel, 2006. "The Value of Health and Longevity," Journal of Political Economy, University of Chicago Press, vol. 114(5), pages 871-904, October.
    27. Luis Rayo & Gary S. Becker, 2007. "Evolutionary Efficiency and Happiness," Journal of Political Economy, University of Chicago Press, vol. 115, pages 302-337.
    28. Menzel, Paul & Dolan, Paul & Richardson, Jeff & Olsen, Jan Abel, 2002. "The role of adaptation to disability and disease in health state valuation: a preliminary normative analysis," Social Science & Medicine, Elsevier, vol. 55(12), pages 2149-2158, December.
    29. Emily Oster & Ira Shoulson & E. Ray Dorsey, 2013. "Optimal Expectations and Limited Medical Testing: Evidence from Huntington Disease," American Economic Review, American Economic Association, vol. 103(2), pages 804-830, April.
    30. Wu, Stephen, 2001. "Adapting to heart conditions: a test of the hedonic treadmill," Journal of Health Economics, Elsevier, vol. 20(4), pages 495-507, July.
    31. R. H. Strotz, 1955. "Myopia and Inconsistency in Dynamic Utility Maximization," Review of Economic Studies, Oxford University Press, vol. 23(3), pages 165-180.
    32. Vegard Skirbekk, 2004. "Age and Individual Productivity: A Literature Survey," Vienna Yearbook of Population Research, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna, vol. 2(1), pages 133-154.
    33. repec:cup:jdemec:v:81:y:2015:i:03:p:301-316_00 is not listed on IDEAS
    34. Oswald, Andrew J. & Powdthavee, Nattavudh, 2008. "Does happiness adapt? A longitudinal study of disability with implications for economists and judges," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1061-1077, June.
    35. Emily Oster & Ira Shoulson & E. Ray Dorsey, 2013. "Limited Life Expectancy, Human Capital and Health Investments," American Economic Review, American Economic Association, vol. 103(5), pages 1977-2002, August.
    36. Grossman, Michael, 1972. "On the Concept of Health Capital and the Demand for Health," Journal of Political Economy, University of Chicago Press, vol. 80(2), pages 223-255, March-Apr.
    37. Powdthavee, Nattavudh, 2009. "What happens to people before and after disability? Focusing effects, lead effects, and adaptation in different areas of life," Social Science & Medicine, Elsevier, vol. 69(12), pages 1834-1844, December.
    38. Carl-Johan Dalgaard & Holger Strulik, 2017. "The Genesis of the Golden Age: Accounting for the Rise in Health and Leisure," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 24, pages 132-151, March.
    39. Groot, Wim, 2000. "Adaptation and scale of reference bias in self-assessments of quality of life," Journal of Health Economics, Elsevier, vol. 19(3), pages 403-420, May.
    40. Harl E. Ryder & Geoffrey M. Heal, 1973. "Optimal Growth with Intertemporally Dependent Preferences," Review of Economic Studies, Oxford University Press, vol. 40(1), pages 1-31.
    41. Arthur J. Robson & Hillard S. Kaplan, 2007. "Why do We Die? Economics, Biology and Aging," American Economic Review, American Economic Association, vol. 97(2), pages 492-495, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Schünemann, Johannes & Strulik, Holger & Trimborn, Timo, 2017. "The gender gap in mortality: How much is explained by behavior?," Journal of Health Economics, Elsevier, vol. 54(C), pages 79-90.
    2. Trimborn, Timo & Schünemann, Johannes & Strulik, Holger, 2016. "Disentangling the Gender Gap in Longevity," Annual Conference 2016 (Augsburg): Demographic Change 145570, Verein für Socialpolitik / German Economic Association.
    3. Strulik, Holger & Trimborn, Timo, 2018. "Hyperbolic discounting can be good for your health," Journal of Economic Psychology, Elsevier, vol. 69(C), pages 44-57.
    4. Schünemann, Johannes & Strulik, Holger & Trimborn, Timo, 2019. "Anticipation of deteriorating health and information avoidance," Center for European, Governance and Economic Development Research Discussion Papers 365, University of Goettingen, Department of Economics.
    5. Sanchez-Romero, Miguel & Fürnkranz-Prskawetz, Alexia, 2019. "Optimal time allocation in active retirement," ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 02/2019, Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON).
    6. repec:eee:jeborg:v:158:y:2019:i:c:p:269-287 is not listed on IDEAS
    7. Strulik, Holger, 2019. "From pain patient to junkie: An economic theory of painkiller consumption and its impact on wellbeing and longevity," Center for European, Governance and Economic Development Research Discussion Papers 359, University of Goettingen, Department of Economics.
    8. Sebastian Böhm & Volker Grossmann & Holger Strulik, 2018. "R&D-Driven Medical Progress, Health Care Costs, and the Future of Human Longevity," CESifo Working Paper Series 6897, CESifo Group Munich.
    9. Strulik, Holger, 2018. "The return to education in terms of wealth and health," The Journal of the Economics of Ageing, Elsevier, vol. 12(C), pages 1-14.
    10. Böhm, Sebastian & Grossmann, Volker & Strulik, Holger, 2017. "The Future of Human Health, Longevity, and Health Costs," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168288, Verein für Socialpolitik / German Economic Association.
    11. Strulik, Holger, 2018. "Smoking kills: An economic theory of addiction, health deficit accumulation, and longevity," Journal of Health Economics, Elsevier, vol. 62(C), pages 1-12.
    12. Böhm, Sebastian & Grossmann, Volker & Strulik, Holger, 2017. "R&D-driven medical progess, health care costs, and the future of human longevity," Center for European, Governance and Economic Development Research Discussion Papers 325, University of Goettingen, Department of Economics.
    13. Johannes Schuenemann & Holger Strulik & Timo Trimborn, . "The Marriage Gap: Optimal Aging and Death in Partnerships," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
    14. Strulik, Holger, 2018. "I shouldn't eat this donut: Self-control, body weight, and health in a life cycle model," Center for European, Governance and Economic Development Research Discussion Papers 360, University of Goettingen, Department of Economics.
    15. Strulik, Holger, 2019. "An economic theory of depression and its impact on health behavior and longevity," Journal of Economic Behavior & Organization, Elsevier, vol. 158(C), pages 269-287.

    More about this item

    JEL classification:

    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:vfsc16:145571. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - Leibniz Information Centre for Economics). General contact details of provider: http://edirc.repec.org/data/vfsocea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.