A HEALTH PRODUCTION MODEL WITH ENDOGENOUS RETIREMENT
Article first published online: 6 AUG 2012
Copyright © 2012 John Wiley & Sons, Ltd.
Volume 22, Issue 8, pages 883–902, August 2013
How to Cite
Galama, T., Kapteyn, A., Fonseca, R. and Michaud, P.-C. (2013), A HEALTH PRODUCTION MODEL WITH ENDOGENOUS RETIREMENT. Health Econ., 22: 883–902. doi: 10.1002/hec.2865
- Issue published online: 8 JUL 2013
- Article first published online: 6 AUG 2012
- Manuscript Accepted: 6 JUL 2012
- Manuscript Revised: 13 JUN 2012
- Manuscript Received: 20 JUL 2011
- demand for health;
- health capital;
- medical care;
We formulate a stylized structural model of health, wealth accumulation and retirement decisions building on the human capital framework of health and derive analytic solutions for the time paths of consumption, health, health investment, savings and retirement. We argue that the literature has been unnecessarily restrictive in assuming that health is always at the ‘optimal’ health level. Exploring the properties of corner solutions, we find that advances in population health decrease the retirement age, whereas at the same time, individuals retire when their health has deteriorated. This potentially explains why retirees point to deteriorating health as an important reason for early retirement, whereas retirement ages have continued to fall in the developed world, despite continued improvements in population health and mortality. In our model, workers with higher human capital invest more in health and, because they stay healthier, retire later than those with lower human capital whose health deteriorates faster. Copyright © 2012 John Wiley & Sons, Ltd.