The Lifetime Costs of Bad Health

55 Pages Posted: 23 Oct 2017 Last revised: 5 Nov 2018

See all articles by Mariacristina De Nardi

Mariacristina De Nardi

University College London, Economics Dpt.; Federal Reserve Bank of Chicago; National Bureau of Economic Research (NBER) - Public Economics

Svetlana Pashchenko

University of Georgia

Ponpoje Porapakkarm

National Graduate Institute for Policy Studies (GRIPS, Tokyo)

Multiple version iconThere are 3 versions of this paper

Date Written: August 27, 2018

Abstract

What are the cumulative effects of health shocks over the life-cycle? The answer depends on the nature of persistence of bad health and the extent to which it changes individuals' economic circumstances. We measure the lifetime costs of bad health using a rich structural model that can reproduce the short- and long-run dynamics of health and health-related inequality in economic outcomes. We explicitly take into account the fact that this inequality can be partly traced back to factors predetermined early in life. Our model has several implications concerning the pecuniary and non-pecuniary effects of health shocks. The lifetime costs of bad health are influenced by ex-ante predetermined factors, and the largest component of pecuniary costs is the loss in labor earnings. Because bad health lowers ones' life expectancy, its non-pecuniary effects are large. In particular, through this channel they are very important for individuals' welfare and non-trivially contribute toward lifetime inequality.

Keywords: health, health insurance, medical spending, wealth-health gradient, life-cycle models

JEL Classification: D52, D91, E21, H53, I13, I18

Suggested Citation

De Nardi, Mariacristina and Pashchenko, Svetlana and Porapakkarm, Ponpoje, The Lifetime Costs of Bad Health (August 27, 2018). Available at SSRN: https://ssrn.com/abstract=3056885 or http://dx.doi.org/10.2139/ssrn.3056885

Mariacristina De Nardi (Contact Author)

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Svetlana Pashchenko

University of Georgia ( email )

Athens, GA 30602-6254
United States

Ponpoje Porapakkarm

National Graduate Institute for Policy Studies (GRIPS, Tokyo) ( email )

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Tokyo 106-8677, Tokyo 106-8677
Japan
+818095248741 (Phone)

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