Old-Age Inequality with Longevity Extension from Preventive Healthcare
59 Pages Posted: 23 Jul 2020 Last revised: 16 Oct 2020
Date Written: June 29, 2020
We analyze whether endogenizing preventive healthcare investment in the lifetime portfolio affects the utility inequality of the elderly. To assess inequality, we exploited the coefficient of variation of the value function for the representative agent. Comparing the inequality of two simple cases with or without a choice of preventive cost reveals how the optimal choice of healthcare prevention affects inequality. The longevity extension from optimal prevention increases both inter- and intra-country welfare inequality among the elderly, mainly due to the adjusted pricing of financial assets.
Calibrated results show that prevention endogenization increases the coefficient of variations by 6.9% for 24 OECD countries and by 3.9% for the elderly in the US.
Keywords: Inequality, Preventive healthcare, Portfolio selection, Longevity, Elasticity of intertemporal substitution
JEL Classification: D60, D61, I12, I13, I14, I18
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