Consumption and investment demand when health evolves stochastically

Kristian Bolin and Michael Caputo

Journal of Economic Dynamics and Control, 2020, vol. 114, issue C

Abstract: The health capital model of Grossman (1972) is extended to account for uncertainty in the rate at which a stock of health depreciates. Two general versions of the model are contemplated, one with a fully functioning financial market and the other in its absence. The comparative dynamics of the feedback form of the consumption and health-investment demand functions are studied in these general settings, where it is shown that the key to deriving refutable results is to determine how a parameter or state variable affects the expected lifetime marginal utilities of health and wealth. To add further reach to the results, a simplified stochastic control problem is explicitly solved, yielding estimable structural feedback demand functions.

Keywords: Comparative dynamics; Health capital; Stochastic optimal control; Structural equations (search for similar items in EconPapers)
JEL-codes: C61 D11 I12 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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Working Paper: Consumption and Investment Demand when Health Evolves Stochastically (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:114:y:2020:i:c:s0165188918302471

DOI: 10.1016/j.jedc.2020.103893

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