Uncertain Lifetime, Health Investment And Welfare

Pablo Garcia-Sanchez () and Olivier Pierrard
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Pablo Garcia-Sanchez: Banque centrale du Luxembourg, Departement Economie et Recherche
Authors registered in the RePEc Author Service: Pablo Garcia Sanchez

No 2023020, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: We build a life cycle model to study the implications of two types of lifetime uncertainty on investment in health and welfare. We show that when the hazard rate of death depends on age, uncertainty increases health investment. Instead, when hazard rate depends on human frailty, uncertainty decreases health investment. In both cases, uncertainty reduces welfare. The size of the effects depends on an aggregate parameter related to the natural increase in human frailty with age, to the marginal return on health investment and to the rate of time preference. We first derive the main results from a small model which admits an analytical solution, before generalizing them in a larger model using numerical simulations. We conclude that the role of uncertainty depends on how death is modeled; and that if death is linked to frailty, as suggested by empirical evidence, a health policy reducing health uncertainty would stimulate individual investment in health promoting activities and improve welfare.

Keywords: life cycle; uncertainty; health; welfare (search for similar items in EconPapers)
JEL-codes: C60 D15 D81 I12 I18 (search for similar items in EconPapers)
Date: 2023-11-14
New Economics Papers: this item is included in nep-dem, nep-dge and nep-hea
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Working Paper: Uncertain lifetime, health investment and welfare (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:2023020

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