A Dynamic Model of Health, Addiction, Education, and Wealth

80 Pages Posted: 13 Nov 2015 Last revised: 16 Apr 2019

See all articles by Rong Hai

Rong Hai

University of Miami - School of Business Administration - Department of Economics

James J. Heckman

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER); American Bar Foundation; Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: March 06, 2019

Abstract

This paper formulates and estimates a dynamic model of health, addiction, education, and wealth in order to understand the well-established positive empirical relationship between education and health. In our model, agents make decisions on schooling, consumption of addictive goods, and saving/borrowing over the lifecycle. Agents differ in their endowments of cognitive and noncognitive skills and initial health and face endogenously-determined borrowing constraints. The consumption of unhealthy addictive goods, joined with low levels of cognitive and noncognitive skills, and limited access to credit markets generate a constellation of bad health, and low levels of education and wealth, which is further reinforced by the complementary between education and health as individuals age. The model is estimated on data from National Longitudinal Survey of Youth 97, using a two-step estimation procedure that combines factor analysis and the simulated method of moments. Using the model, we quantify the causal relationship between education and health. We then conduct counterfactual policy experiments to assess (1) how excise tax policies on the consumption of addictive goods affect health, education, and wealth, and (2) how policies that improve endowments affect health, addiction, education, and wealth.

Keywords: Health Capital, Education, Wealth, Human Capital, Rational Addiction, Credit Constraints, Unhealthy Behavior

JEL Classification: I1, I2, J2

Suggested Citation

Hai, Rong and Heckman, James J., A Dynamic Model of Health, Addiction, Education, and Wealth (March 06, 2019). Becker Friedman Institute for Research in Economics Working Paper No. 2688384; University of Miami Business School Research Paper No. 2688384. Available at SSRN: https://ssrn.com/abstract=2688384 or http://dx.doi.org/10.2139/ssrn.2688384

Rong Hai (Contact Author)

University of Miami - School of Business Administration - Department of Economics ( email )

P.O. Box 248126
Coral Gables, FL 33124-6550
United States

HOME PAGE: http://https://sites.google.com/site/ronghaiecon/

James J. Heckman

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States
773-702-0634 (Phone)
773-702-8490 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

American Bar Foundation

750 N. Lake Shore Drive
Chicago, IL 60611
United States

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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