Old Age Risks, Consumption, and Insurance
In the U.S, 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 U.S. 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.
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Copy CitationRichard Blundell, Margherita Borella, Jeanne Commault, and Mariacristina De Nardi, "Old Age Risks, Consumption, and Insurance," NBER Working Paper 27348 (2020), https://doi.org/10.3386/w27348.Download Citation
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Published Versions
Richard Blundell & Margherita Borella & Jeanne Commault & Mariacristina De Nardi, 2024. "Old Age Risks, Consumption, and Insurance," American Economic Review, American Economic Association, vol. 114(2), pages 575-613, February. citation courtesy of 
Richard Blundell & Margherita Borella & Jeanne Commault & Mariacristina De Nardi, 2024. "Old Age Risks, Consumption, and Insurance," American Economic Review, vol 114(2), pages 575-613.
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