Consumption and Investment Demand when Health Evolves Stochastically

Kristian Bolin and Michael Caputo

No 710, Working Papers in Economics from University of Gothenburg, Department of Economics

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 versions of the model are contemplated, one with a fully functioning financial market and the other in its absence. The comparative dynamics of the consumption and health-investment demand functions are studied in both models in a general setting, where it is shown that the key to deriving refutable results is to determine how a parameter or state variable affects the lifetime marginal utilities of health and wealth. To add further bite to the results, a stochastic control problem is solved for its feedback consumption and health-investment demand functions, thereby yielding estimable structural 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)
Pages: 24 pages
Date: 2017-10
New Economics Papers: this item is included in nep-hea
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http://hdl.handle.net/2077/54122 (text/html)

Related works:
Journal Article: Consumption and investment demand when health evolves stochastically (2020)
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