Growth and Welfare under Endogenous Lifetimes. (16th November 2021)

• Record Type: Journal Article
• Authors: Schneider, Maik T.; Winkler, Ralph
• Is Part Of: Scandinavian journal of economics. Volume 123:Number 4(2021)
• Page Start: 1339
• Page End: 1384
• Publication Date: 2021-11-16
• Subjects: Economic growth -- endogenous longevity -- healthcare expenditures -- healthcare tech‐nology -- moral hazard; Economics -- Periodicals; 330.05
• DOI: 10.1111/sjoe.12455
• Languages: English
• ISSNs: 0347-0520

Abstract

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 we 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 can be substantial and implies sizable welfare losses of approximately 1.4–2.8 percent, depending on the share of annuitized retirement wealth.