Abstract
This study introduces physiological aging into a simple model of optimal intertemporal
consumption. In this endeavor we draw on the natural science literature on
aging. According to the purposed theory, the speed of the aging process and the time
of death are endogenously determined by optimal health investments. At the same time,
physiological aspects of the aging process influence optimal savings and health investment.
We calibrate the model for the average US male in 2000 and proceed to show that the
calibrated model accounts well for the cross-country link between labor productivity and
life expectancy in the same year ("the Preston curve"); cross-country income differences
can explain differences in life expectancy at age 20 of up to a decade. Moreover, technological
change in health care of about 1.1% per year can account for the observed shift in
the Preston curve between 1980 and 2000.
| Original language | English |
|---|---|
| Place of Publication | Hannover, Germany |
| Number of pages | 34 |
| Publication status | Published - 2010 |
Keywords
- Faculty of Social Sciences
- aging
- longevity
- health investments
- savings
- Preston curve
