Social and Behavioral Sciences Commons^™

Grossman's Health Threshold And Retirement, Titus Galama, Arie Kapteyn, Raquel Fonseca, Pierre-Carl Michaud

Titus Galama

We formulate a stylized structural model of health, wealth accumulation and retirement decisions building on the human capital framework of health provided by Grossman. We explicitly assume a functional form of the utility function and carefully account for initial conditions, which allow us to derive analytic solutions for the time paths of consumption, health, health investment, savings and retirement. We argue that the Grossman literature has been unnecessarily restrictive in assuming that health is always at Grossman’s “optimal” health level. Exploring the properties of corner solutions we find that advances in population health (health capital) can explain the paradox that …