A Structural Analysis of the Health Expenditures and Portfolio Choices of Retired Agents

Richer and healthier agents tend to hold riskier portfolios and spend proportionally less on health expenditures. Potential explanations include health and wealth effects on preferences, expected longevity or disposable total wealth. Using HRS data, we perform a structural estimation of a dynamic model of consumption, portfolio and health expenditure choices with recursive utility, as well as health-dependent income and mortality risk. Our estimates of the deep parameters highlight the importance of health capital, mortality risk control, convex health and mortality adjustment costs and binding liquidity constraints to rationalize the stylized facts. They also provide new perspectives on expected longevity and on the values of life and health

Health and (other) Asset Holdings

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

Estimating aggregate autoregressive processes when only macro data are available

The aggregation of individual random AR(1) models generally leads to an AR(infinity) process. We provide two consistent estimators of aggregate dynamics based on either a parametric regression or a minimum distance approach for use when only macro data are available. Notably, both estimators allow us to recover some moments of the cross-sectional distribution of the autoregressive parameter. Both estimators perform very well in our Monte-Carlo experiment, even with finite samples

Aggregating Rational Expectations Models In the Presence of Unobserved Micro Heterogeneity

Our paper addresses the correction of the aggregation bias in linear rational expectations models when there is some unobserved micro-parameter heterogeneity and only macro data are available. Starting from Lewbel (1994), we propose two new consistent estimators, which rely on a flexible parametric specification of the cross-sectional parameter distributions and account for the dependence across coefficients inherent in such models. A Monte-Carlo study reveals that the finite-sample and asymptotic properties of the proposed estimators correct the aggregation bias found with the maximum-likelihood and generalized-method-of-moments approaches. As a by-product, we can also infer the cross-sectional distribution of the parameters. Finally, we re- assess the empirical evidence about the New Keynesian Phillips curve and explain the apparent discrepancy between micro- and macro-based estimates of the average persistence of inflatio

Time Consistent Control in Non-Linear models

The paper shows how to use optimal control to compute optimal time-consistent Markovian government policies in nonlinear dynamic general equilibrium models. It extends Cohen and Michel's (1988) results for the linear-quadratic case. The method involves replacing private agents' costate variables with flexible functions of current state variables in the government's maximization problem. The functions hold in equilibrium to an arbitrarily close approximation. They can be found numerically by perturbation or projection methods. A stochastic model of optimal public spending illustrates the technique

International capital mobility: What do national saving-investment dynamics tell us?

We interpret the relationship between national saving and investment in the long-run as reflecting a solvency constraint, and interpret the ease with which a country can run current account imbalances in the short run, before it has to ultimately reverse the transaction at some future date to satisfy the solvency constraint, as being positively related to the degree of international capital mobility. We apply panel error-correction techniques to data for 20 OECD countries from 1960 to 1999. We find that saving and investment display a long-run cointegration relationship that is consistent with the interpretation that a long-run solvency constraint is binding for each country. Over time, however, deviations from this long-run equilibrium relation have become more persistent, which suggests that capital mobility has increased

Life Cycle responses to Health Insurance Status

This paper studies the lifetime effects of exogenous changes in health insurance coverage (e.g. Medicare, PPACA, termination of employer-provided plans) on the dynamic optimal allocation (consumption, leisure, health expenditures), status (health, and wealth), and welfare. We solve, simulate, and structurally estimate a parsimonious life cycle model with endogenous exposure to morbidity and mortality risks, and exogenous health insurance. By varying coverage, we identify the marginal effects of insurance when young and/or when old on allocations, statuses, and welfare. Our results highlight positive effects of insurance on health, wealth and welfare, as well as mid-life substitution away from healthy leisure in favor of more health expenses, caused by peaking wages, and accelerating health issues

Self-Inflicted Unemployment Scarring and Stigma

Long-term scars of unemployment include higher ex-post displacement, and income losses, as well as lower re-employment for longer unemployment spells (stigma). Human capital explanations assume it increases wages, and re-employment, and decreases displacement risk, but rely on tenure-based and/or employer decided acquisition only. We consider an alternative where investment decisions are made by workers, allowing for displacement and re-employment risks hedging, and assuming that the investment technology is independent of the employment status. We calculate analytically the joint optimal investment by the employed and the unemployed. We identify two dynamically stable steady-state values with a lower one for the unemployed generating cyclical dynamics whereby human capital optimally falls during unemployment spells, and increases again upon re-employment. It follows that scarring and stigma are endogenously generated as a by-product of decisions made by agents, and are therefore self-inflicted. We close the analysis by a counter-factual exercise allowing to gauge and confirm the importance of employment risks hedging in total demand for human capital, and that of moral hazard issues in the design of UIB program

Valuing Life at Gunpoint

The Human Capital (HK), and Statistical Life Values (VSL) lack a common theoretical background, and di_er sharply in their empirical pricing of a human life. This paper makes four contributions to the theory, and measurement of the latter. First, we provide a uni_ed framework to formally de_ne, and relate the HK, and the VSL. Second, we use this setting to introduce a third life value calculated at Gunpoint (GPV), i.e. the maximal Hicksian willingness to pay to avoid certain, instantaneous death. Third, we associate a exible human capital model to the common framework to characterize the three life valuations in closed-form. Fourth, we structurally estimate the three life values. Our results con_rm the relevance of reduced-form HK, and VSL estimates, identify the role of technological, distributional, and preferences parameters, and clarify the formal links between the alternative valuations