Growth and Welfare under Endogenous Lifetime

Maik Schneider and Ralph Winkler
Additional contact information
Maik Schneider: University of Bath
Ralph Winkler: University of Bern

No 47/16, Department of Economics Working Papers from University of Bath, Department of Economics

Abstract: We study the role of endogenous healthcare choices by households to extend their expected lifetimes on economic growth and welfare in a decentralized overlapping generations economy with the realistic feature that households’ savings are held in annuities. We characterize healthcare spending in the decentralized market equilibrium and its effects on economic growth. We then identify the moral-hazard effect in healthcare investments when annuity rates are conditioned on average mortality and explain the conditions under which it will lead to over-investment in healthcare. Moreover, we specify the general equilibrium effects and macroeconomic repercussions associated with this moral-hazard effect. Calibrating our model to OECD data, we find that the moral-hazard effect may be substantial and implies sizeable welfare losses of approximately 1.5%. At a more general level, our study suggests that welfare improvements from longevity increases may be quite lower than sometimes assumed when considered in planner economies.

Date: 2016-02
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://purehost.bath.ac.uk/ws/files/158385923/gro ... ogenous_lifetime.pdf Final published version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eid:wpaper:58158

Access Statistics for this paper

More papers in Department of Economics Working Papers from University of Bath, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Scholarly Communications Librarian ().