NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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The Lifetime Costs of Bad Health

Mariacristina De Nardi, Svetlana Pashchenko, Ponpoje Porapakkarm

NBER Working Paper No. 23963
Issued in October 2017, Revised in October 2018
NBER Program(s):The Public Economics Program

What are the cumulative effects of health shocks over the life-cycle? The answer depends on the nature of persistence of bad health and the extent to which it changes individuals' economic circumstances. We measure the lifetime costs of bad health using a rich structural model that can reproduce the short- and long-run dynamics of health and health-related inequality in economic outcomes. We explicitly take into account the fact that this inequality can be partly traced back to factors predetermined early in life. Our model has several implications concerning the pecuniary and non-pecuniary effects of health shocks. The life- time costs of bad health are influenced by ex-ante predetermined factors, and the largest component of pecuniary costs is the loss in labor earnings. Because bad health lowers ones' life expectancy, its non-pecuniary effects are large. In particular, through this channel they are very important for individuals' welfare and non-trivially contribute toward lifetime inequality.

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Document Object Identifier (DOI): 10.3386/w23963

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