Healthcare and Consumption with Aging

40 Pages Posted: 14 Jul 2016 Last revised: 23 Sep 2016

See all articles by Paolo Guasoni

Paolo Guasoni

Dublin City University - School of Mathematical Sciences; Boston University - Department of Mathematics and Statistics

Yu-Jui Huang

University of Colorado at Boulder - Department of Applied Mathematics

Date Written: September 22, 2016

Abstract

Health-care slows the natural growth of mortality, indirectly increasing utility from consumption through longer lifetimes. This paper solves the problem of optimal dynamic consumption and healthcare spending with isoelastic utility, when natural mortality grows exponentially to reflect the Gompertz' law. Optimal consumption and healthcare imply an endogenous mortality law that is asymptotically exponential in the old-age limit, with lower growth rate than natural mortality. Health spending steadily increases with age, both in absolute terms and relative to total spending. Differential access to healthcare can account for observed longevity gains across cohorts.

Keywords: healthcare, consumption, aging, mortality, Gompertz law

JEL Classification: E21, I12

Suggested Citation

Guasoni, Paolo and Huang, Yu-Jui, Healthcare and Consumption with Aging (September 22, 2016). Available at SSRN: https://ssrn.com/abstract=2808362 or http://dx.doi.org/10.2139/ssrn.2808362

Paolo Guasoni (Contact Author)

Dublin City University - School of Mathematical Sciences ( email )

Dublin
Ireland

HOME PAGE: http://www.guasoni.com

Boston University - Department of Mathematics and Statistics ( email )

Boston, MA 02215
United States

Yu-Jui Huang

University of Colorado at Boulder - Department of Applied Mathematics ( email )

Boulder, CO 80309
United States

HOME PAGE: http://www.yujui-huang.com

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