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Old Age Risks, Consumption, and Insurance

Blundell, Richard; (2024) Old Age Risks, Consumption, and Insurance. The American Economic Review , 114 (2) pp. 575-613. 10.1257/aer.20220555. Green open access

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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.

Type: Article
Title: Old Age Risks, Consumption, and Insurance
Open access status: An open access version is available from UCL Discovery
DOI: 10.1257/aer.20220555
Publisher version: https://doi.org/10.1257/aer.20220555
Language: English
Additional information: This version is the version of record. For information on re-use, please refer to the publisher's terms and conditions.
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/10186300
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