A health production model with endogenous retirement

Titus Galama*, Arie Kapteyn, Raquel Fonseca, Pierre Carl Michaud

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

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.

Original languageEnglish
Pages (from-to)883-902
Number of pages20
JournalHealth Economics (United Kingdom)
Volume22
Issue number8
DOIs
Publication statusPublished - 1 Aug 2013
Externally publishedYes

Keywords

  • I10
  • I12
  • J00
  • J24
  • J26

Fingerprint Dive into the research topics of 'A health production model with endogenous retirement'. Together they form a unique fingerprint.

Cite this