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Intertemporal choice with health-dependent discounting

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  • Strulik, Holger

Abstract

In this paper I discuss a standard model of life cycle consumption behavior when the discount rate depends on the state of health and health deteriorates with increasing age. I show that this feature allows the introduction of time-consistent discounting at a non-constant rate and to model, in a convenient way, the notion that individuals discount future payoffs at higher rates when the risk of death increases. I show that the model generates an empirically plausible age-consumption pattern even when perfect annuity markets exist.

Suggested Citation

  • Strulik, Holger, 2021. "Intertemporal choice with health-dependent discounting," Mathematical Social Sciences, Elsevier, vol. 111(C), pages 19-25.
    • Handle: RePEc:eee:matsoc:v:111:y:2021:i:c:p:19-25
    DOI: 10.1016/j.mathsocsci.2021.03.001
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    References listed on IDEAS

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