Closing Down the Shop: Optimal Health and Wealth Dynamics Near the End of Life

60 Pages Posted: 21 Mar 2017 Last revised: 4 May 2018

See all articles by Julien Hugonnier

Julien Hugonnier

Swiss Federal Institute of Technology Lausanne - Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

Florian Pelgrin

EDHEC Business School; EDHEC Business School

Pascal St-Amour

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne); Swiss Finance Institute

Date Written: April 18, 2018

Abstract

Near the end of life, health declines, mortality risk increases and curative is replaced by uninsured long-term care, accelerating the fall in wealth. Whereas standard explanations emphasize inevitable aging processes, we propose a com- plementary closing down the shop justification where agents’ decisions affect their health and the timing of death. Despite preferring to live, individuals optimally deplete their health and wealth towards levels associated with high death risk and indifference between life and death. Reinstating exogenous aging processes reinforces the relevance of closing down. Using HRS data for elders, a structural estimation of the closed-form decisions identifies and tests conditions for these strategies to be optimal and confirm their economic relevance. We also discuss why policy intervention to reduce the incidence of closing down, although feasible, is not warranted.

Keywords: End of life; Life cycle; Dis-savings; Endogenous mortality risk; Unmet medical needs; Right to refuse treatment

JEL Classification: D15, I12

Suggested Citation

Hugonnier, Julien and Pelgrin, Florian and St-Amour, Pascal, Closing Down the Shop: Optimal Health and Wealth Dynamics Near the End of Life (April 18, 2018). Swiss Finance Institute Research Paper No. 17-11. Available at SSRN: https://ssrn.com/abstract=2938545 or http://dx.doi.org/10.2139/ssrn.2938545

Julien Hugonnier

Swiss Federal Institute of Technology Lausanne - Ecole Polytechnique Fédérale de Lausanne ( email )

Quartier UNIL Dorigny
Extranef
Lausanne, CH-1015
Switzerland

HOME PAGE: http://sfi.epfl.ch/hugonnier

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Florian Pelgrin

EDHEC Business School ( email )

France
Switzerland

EDHEC Business School ( email )

58 rue du Port
Lille, 59046
France

Pascal St-Amour (Contact Author)

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne) ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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