(UM10-19) - New Explorations of Health and Wealth
John Karl Scholz and Ananth Seshadri
We explore the role of health shocks on wealth and retirement income. Several recent contributions to the literature emphasize that precautionary saving in response to health uncertainty plays a critical role in understanding age-asset profiles of households. These studies assume that medical expenses are exogenous; that they have only financial consequences; and that they do not affect utility or longevity. We develop a model in which health expenditures affect both longevity and utility and in which health investment and consumption are allowed to respond to potential policy changes. To develop the model and estimate key parameters, we will develop new empirical models of medical expenditures and correlates of health and longevity.