Health and Wealth in a Life Cycle Model
34 Pages Posted: 11 Nov 2010 Last revised: 24 May 2011
Date Written: May 20, 2011
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.
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