Abstract
We study the role of endogenous healthcare choices by households to extend their expected lifetimes on economic growth and welfare in a decentralized overlapping generations economy with annuitized wealth. We characterize endogenous healthcare spending in the decentralized market equilibrium and its effects on economic growth and identify the moral-hazard effect in healthcare investments when annuity rates are conditioned on average mortality. In a numerical simulation of our model with OECD data from 2005, we find that the moral-hazard effect may be substantial and implies sizeable welfare losses of approximately 1.4–2.8%, depending on the share of annuitized retirement wealth.
Original language | English |
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Pages (from-to) | 1339-1384 |
Number of pages | 46 |
Journal | The Scandinavian Journal of Economics |
Volume | 123 |
Issue number | 4 |
Early online date | 8 Jul 2021 |
DOIs | |
Publication status | Published - 31 Oct 2021 |