Health and (Other) Asset Holdings
81 Pages Posted: 12 Jun 2009 Last revised: 9 Jun 2015
Date Written: October 25, 2012
Despite clear evidence of correlations between financial and medical statuses and decisions, most models treat financial and health-related choices separately. This paper bridges this gap by proposing a tractable dynamic framework for the joint determination of optimal consumption, portfolio holdings, health investment and health insurance. We solve for the optimal rules in closed form and capitalize on this tractability to gain a better understanding of the conditions under which separation between financial and health-related decisions is sensible, and of the pathways through which wealth and health determine allocations, welfare and other variables of interest such as expected longevity or the value of health. Furthermore we show that the model is consistent with the observed patterns of individual allocations and provide realistic estimates of the parameters that confirm the relevance of all the main characteristics of the model.
Keywords: portfolio, health investment, mortality risk
JEL Classification: G11, I12
Suggested Citation: Suggested Citation