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The Welfare Effects of Nonlinear Health Dynamics

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  • Dal Bianco, Chiara
  • Moro, Andrea

Abstract

We generate a continuous measure of health to estimate a non-parametric model of health dynamics, showing that adverse health shocks are highly persistent when suffered by people in poor health, a pattern that cannot be accounted for by canonical models. We incorporate this health measure into a life-cycle model of consumption, savings, and labor force participation. After estimating the model parameters, we simulate the effects of health shocks on economic outcomes. We find that bad health shocks have persistent adverse economic effects that are more dramatic for poor individuals starting in bad health. Bad health shocks also increase the dispersion of asset accumulation within this category of individuals. A canonical model of health dynamics would not uncover these effects

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  • Dal Bianco, Chiara & Moro, Andrea, 2022. "The Welfare Effects of Nonlinear Health Dynamics," SocArXiv dvhby, Center for Open Science.
    • Handle: RePEc:osf:socarx:dvhby
    DOI: 10.31219/osf.io/dvhby
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