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American Economic Review Vol. 114 No. 2 2024

Old Age Risks, Consumption, and Insurance

Richard Blundell1; Margherita Borella2; Jeanne Commault3; Mariacristina De Nardi4

1 University College London, IFS, TSE, and CEPR (email: ) · 2 University of Torino and CeRP-Collegio Carlo Alberto (email: ) · 3 Sciences Po (email: ) · 4 University of Minnesota, Federal Reserve Bank of Minneapolis, CEPR, and NBER (email: )

Abstract

In the United States, after age 65, households face income and health risks, and a large fraction of these risks are transitory. While consumption significantly responds to transitory income shocks, out-of-pocket medical expenses do not. In contrast, both consumption and out-of-pocket medical expenses respond to transitory health shocks. Thus, most US elderly keep their out-of-pocket medical expenses close to a satiation point that varies with health. Consumption responds to health shocks mostly because adverse health shocks reduce the marginal utility of consumption. The effect of health on marginal utility changes the optimal transfers due to health shocks.

DOI
10.1257/aer.20220555
Volume
114
Issue
2
Pages
575-613
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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