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Optimal Investment in Health when Lifetime is Stochastic, or, Rational Agents do not Often Follow Health Agency Recommendations

Author

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  • Bolin, Kristian

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Caputo, Michael R.

    (Department of Economics University of Central Florida)

Abstract

A health-capital model is contemplated which accounts for the consumption of many goods, a stock of health and investment in it, as well as an agent’s random lifetime and accumulation of wealth. It is shown that if an agent maximizes the expected discounted value of lifetime utility, or if an agent maximizes the expected value of their lifetime, then an agent does not follow the health-investment policy that minimizes the conditional probability of dying at each point in time, in general. What is more, simple and intuitive sufficient, and necessary and sufficient, conditions are identified whereby such agents investment more or less in their health than said policy.

Suggested Citation

  • Bolin, Kristian & Caputo, Michael R., 2018. "Optimal Investment in Health when Lifetime is Stochastic, or, Rational Agents do not Often Follow Health Agency Recommendations," Working Papers in Economics 734, University of Gothenburg, Department of Economics.
    • Handle: RePEc:hhs:gunwpe:0734
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    References listed on IDEAS

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    1. Caputo,Michael R., 2005. "Foundations of Dynamic Economic Analysis," Cambridge Books, Cambridge University Press, number 9780521842723.
    2. Carl-Johan Dalgaard & Holger Strulik, 2014. "Optimal Aging And Death: Understanding The Preston Curve," Journal of the European Economic Association, European Economic Association, vol. 12(3), pages 672-701, June.
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    6. Ehrlich, Isaac & Chuma, Hiroyuki, 1990. "A Model of the Demand for Longevity and the Value of Life Extension," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 761-782, August.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    health capital; health investment; optimal control; random lifetime;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior

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