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Health and (other) Asset Holdings

Julien Hugonnier, Florian Pelgrin and Pascal St-Amour ()
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Julien Hugonnier: University of Lausanne and Swiss Finance Institute
Florian Pelgrin: University of Lausanne and CIRANO

No 09-18, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: The empirical literature on the asset allocation and medical expenditures of U.S. households consistently shows that risky portfolio shares are increasing in both wealth and health whereas health investment shares are decreasing in these same variables. Despite this evidence, most of the existing models treat financial and health-related choices separately. This paper bridges this gap by proposing a tractable framework for the joint determination of optimal consumption, portfolio and health investments. We solve for the optimal rules in closed form and show that the model can theoretically reproduce the empirical facts. Capitalizing on this closed-form solution, we perform a structural estimation of the model on HRS data. Our parameter estimates are reasonable and confirm the relevance of all the main characteristics of the model.

Keywords: Portfolio; Health Investment; Mortality Risk. (search for similar items in EconPapers)
JEL-codes: G11 I12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hea
Date: 2009-05
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp0918

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