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Closing down the shop: Optimal health and wealth dynamics near the end of life
Author(s) -
Hugonnier Julien,
Pelgrin Florian,
StAmour Pascal
Publication year - 2020
Publication title -
health economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.55
H-Index - 109
eISSN - 1099-1050
pISSN - 1057-9230
DOI - 10.1002/hec.3960
Subject(s) - closing (real estate) , relevance (law) , consumption (sociology) , affect (linguistics) , health and retirement study , estimation , economics , actuarial science , demographic economics , gerontology , medicine , psychology , sociology , political science , finance , social science , management , communication , law
Abstract Near the end of life, health declines, mortality risk increases, and curative care is replaced by uninsured long‐term care, accelerating the fall in wealth. Whereas standard explanations emphasize inevitable aging processes, we propose a complementary closing down the shop justification where agents' decisions affect their health and the timing of death. Despite preferring to live, individuals optimally deplete their health and wealth towards levels associated with high death risk and gradual indifference between life and death. Reinstating exogenous aging processes reinforces the relevance of closing down. Using Health and Retirement Study–Consumption and Activities Mail Survey data for elders, a structural estimation of the closed‐form decisions identifies, tests, and confirms the relevance of closing down.