DP14796 Can Wealth Buy Health? A Model of Pecuniary and Non-Pecuniary Investments in Health

Author(s): Panagiotis Margaris, Johanna Wallenius
Publication Date: May 2020
Keyword(s): health, inequality, Life Cycle, time use
JEL(s): D31, E21, I14
Programme Areas: Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14796

In this paper we develop and estimate a life cycle model that features pecuniary and non-pecuniary investments in health, along with a cognitive ability gradient associated with said investments, in order to rationalize the socioeconomic gradients in health and life expectancy in the United States. Agents accumulate health capital, which affects the level of utility, labor productivity, the distribution of medical spending shocks and life expectancy. We find that the cognitive ability gradient to health investments and the differences in lifetime income account for the lion's share of the observed life expectancy gap. Providing universal health insurance coverage has heterogeneous effects, depending on the progressivity of the financing mechanism, and at best results in a modest decrease in the life expectancy gap.