Health Investment over the Life-Cycle
Timothy J. Halliday
University of Hawai'i at Manoa
Hui He
Hao Zhang
3/10/2014 9:11:08 AM
Abstract:
We quantify what drives the rise in medical expenditures over the life-cycle using a dynamic overlapping generations model of health investment. Three motives for health investment are considered. First, health delivers a flow of utility each period (the consumption motive). Second, better health enables people to allocate more time to productive or pleasurable activities (the investment motive). Third, better health improves survival prospects (the survival motive). We find that the investment motive is more important than the consumption motive until about age 50. After that, the rise in medical expenditures is primarily driven by the consumption motive since better health improves the quality of life. The survival motive is quantitatively less important when compared to the other two motives. We also conduct a series of counter-factual policy experiments to investigate how modi?cations to Social Security, medical expenditure subsidies and health care technologies affect the behavior of medical expenditures.
Keyword: 
Quantitative Macroeconomics, Life Cycle, Medical Expenditure, Social Security