Old Age Risks, Consumption, and Insurance
American Economic Review
vol. 114,
no. 2, February 2024
(pp. 575-613)
Abstract
In the United States, after age 65, households face income and health risks, and a large fraction of these risks are transitory. While consumption significantly responds to transitory income shocks, out-of-pocket medical expenses do not. In contrast, both consumption and out-of-pocket medical expenses respond to transitory health shocks. Thus, most US elderly keep their out-of-pocket medical expenses close to a satiation point that varies with health. Consumption responds to health shocks mostly because adverse health shocks reduce the marginal utility of consumption. The effect of health on marginal utility changes the optimal transfers due to health shocks.Citation
Blundell, Richard, Margherita Borella, Jeanne Commault, and Mariacristina De Nardi. 2024. "Old Age Risks, Consumption, and Insurance." American Economic Review, 114 (2): 575-613. DOI: 10.1257/aer.20220555Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- E21 Macroeconomics: Consumption; Saving; Wealth
- G22 Insurance; Insurance Companies; Actuarial Studies
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
- I10 Health: General
- J14 Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination
- J26 Retirement; Retirement Policies