optimal aging and death understanding the preston curve does prosperity lead to greater longevity if so what is the strength of the income channel to address these questions we develop a life cycle model in which households are subject to physiological aging in modeling aging we draw on recent research in the elds of biology and medicine the speed of the aging process and thus the time of death are endogenously determined by optimal health investments a calibrated version of the model accounts well for the observed non linear cross country link between longevity and income also known as the preston curve

the effect of income on mortality evidence from the social security notch abstract legislation in the 1970s created a notch in social security payments with those born after january 1 1917 receiving sharply lower benefits using restricted use versions of the national mortality detail file combined with census data we use this quasi experiment to examine the income mortality link in an elderly population estimates from difference in difference and regression discontinuity models show the higher income group has a statistically significantly higher mortality rate contradicting the previous literature we also found that younger cohorts responded to lower incomes by increasing postretirement work effort suggesting that moderate employment has beneficial health effects for the elderly

socio economic status health and lifestyle abstract the role of lifestyle in mediating the relationship between socio economic characteristics and health has been discussed extensively in the epidemiological and economic literatures previous analyses have not considered a formal framework incorporating unobservable heterogeneity in this paper we develop a simple economic model in which health is determined partially by lifestyle which depends on preferences budget and time constraints and unobservable characteristics we estimate a recursive empirical specification consisting of a health production function and reduced forms for the lifestyle equations using maximum simulated likelihood msl for a multivariate probit mvp model with discrete indicators of lifestyle choices and self assessed health sah on british panel data from the 1984 and 1991 health and lifestyle survey hals we find that sleeping well exercising and not smoking in 1984 have dramatic positive effects on the probability of reporting excellent or good sah in 1991 and that these effects are much larger having accounted for endogeneity the failure of epidemiological analyses to account for unobserved heterogeneity can explain their low estimates of the relevance of lifestyle in the socio economic status health relationship indicators for prudent alcohol consumption and eating breakfast in 1984 are not found to be statistically significant determinants of sah in 1991

estimating the effect of income on health and mortality using lottery prizes as an exogenous source of variation in income a vast literature has established a strong positive relation between income and health status and a negative relation with mortality this paper studies the effects of income on health and mortality using only the part of income variation due to a truly exogenous factor monetary lottery prizes of individuals the findings are that higher income causally generates good health and that this effect is of a similar magnitude as when traditional estimation techniques are used a 10 percent income increase improves health by about 4 5 percent of a standard deviation

wealth and health behavior testing the concept of a health cost wealthier individuals engage in healthier behavior this paper seeks to explain this phenomenon by exploiting both inheritances and lottery winnings to test a theory of health behavior we distinguish between the direct monetary cost and the indirect health cost value of health lost of unhealthy consumption the health cost increases with wealth and the degree of unhealthiness leading wealthier individuals to consume more healthy and moderately unhealthy but fewer severely unhealthy goods the empirical evidence presented suggests that differences in health costs may indeed partially explain behavioral differences and ultimately health outcomes between wealth groups

exploring the health wealth nexus the causal links between health and economic resources have long concerned social scientists we use four waves of data from the panel study of income dynamics psid to analyze the impact of wealth upon an individual s health status the difficulty in approaching this task that has bedeviled previous studies is that wealth may be endogenous a priori it is just as likely that changes in health affect wealth as vice versa we argue that inheritance is a suitable instrument for the change in wealth and implement a straightforward instrumental variables strategy to deal with this problem our results suggest that the causal relationship running from wealth to health may not be as strong as first appears in the data wealth exerts a positive and statistically significant effect on health status but it is very small in magnitude instrumental variables estimation leaves the point estimate approximately the same but renders it insignificantly different from zero and even when the point estimate is increased by twice its standard error s e the quantitative effect is small we conclude that the wealth health connection is not driven by short run changes in wealth

the meaning of death some simulations of a model of healthy and unhealthy consumption simulations of a model of healthy and unhealthy consumption are used to investigate the impact of various terminal conditions on life span pathways of health related consumption and health a model in which life span and the death stock of health are fixed is compared to versions in which i the death stock of health is freely chosen ii life span is freely chosen iii both the death stock of health and life span are freely chosen the choice of terminal conditions has a striking impact on optimal plans results are discussed with reference to the existing demand for health literature and illustrate the application of iterative processes to determine optimal life span the role played by the marginal value of health capital in determining optimal plans and the importance of checking the second order conditions for the optimal choice of life span

a model of the demand for longevity and the value of life extension we specify a demand function for longevity or quantity of life along with corresponding demand functions for indicators of quality of life and a value of health and life extension function we show that the demand for health must be derived in conjunction with that for longevity and the related consumption plan and that all choices depend on initial individual endowments and terminal conditions our comparative dynamics predictions indicate that optimal health and longevity are increasing functions of endowed wealth rather than necessarily current income that improvements in opportunities to produce health can accentuate the differences between endowed health and attained longevity levels and that the value individuals ascribe to their health may be increasing over a good portion of their life cycle we use this model to analyze observed empirical variations in levels and trends of life expectancy and in exposure to health risks across different population groups

the effect of inheritance receipt on retirement abstract this paper provides new evidence on how wealth shocks influence retirement behavior economic theory generally posits that leisure is a normal good yet it is difficult to obtain reliable empirical estimates of the wealth effect because wealth is correlated with numerous unobservable characteristics that affect labor supply we use inheritance receipt as a wealth shock and find that it is associated with a significant increase in the probability of retirement especially when the inheritance is unexpected this evidence has important implications for how public policies such as pension or tax reform may influence retirement behavior through the wealth effect

health and wealth of elderly couples causality tests using dynamic panel data models a positive relationship between socio economic status ses and health the health wealth gradient is repeatedly found in many industrialized countries this study analyzes competing explanations for this gradient causal effects from health to wealth health causation and causal effects from wealth to health wealth or social causation using six biennial waves of couples aged 51 61 in 1992 from the us health and retirement study we test for causality in panel data models incorporating unobserved heterogeneity and a lag structure supported by specification tests in contrast to tests relying on models with only first order lags or without unobserved heterogeneity these tests provide no evidence of causal wealth health effects on the other hand we find strong evidence of causal effects from both spouses health on household wealth we also find an effect of the husband s health on the wife s mental health but no other effects from one spouse s health to health of the other spouse

estimating the effect of unearned income on labor supply earnings savings and consumption evidence from a survey of lottery players this paper provides empirical evidence about the effect of unearned income on earnings consumption and savings using an original survey of people playing the lottery in massachusetts in the mid 1980 s the effects of the magnitude of lottery prizes on economic behavior are analyzed the critical assumption is that among lottery winners the magnitude of the prize is randomly assigned it is found that unearned income reduces labor earnings with a marginal propensity to consume leisure of approximately 11 percent with larger effects for individuals between 55 and 65 years old after receiving about half their prize individuals saved about 16 percent

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

the regulating power market on the nordic power exchange nord pool an econometric analysis abstract what differentiates the structure of nord pool from other power exchanges around the world is the way the balance from the spot market is maintained until the actual physical delivery takes place via the regulating power market in norway this paper reveals the pattern of the prices on the regulating power market by analysing the cost of being unable to fulfil the commitments made on the spot market some power producers with unpredictable fluctuations e g wind will need to buy regulation services the disclosed pattern implies that these producers must pay a limited premium of readiness in addition to the spot price this premium is independent of the amount of regulation the level of the premium of readiness for down regulation is shown to be strongly influenced by the level of the spot price on the other hand it is demonstrated that the premium for up regulation is less correlated to the spot price furthermore it is found that the amount of regulation affects the price of regulating power for up regulation more strongly than it does for down regulation the disclosed cost of using the regulating power market is a quadratic function of the amount of regulation this asymmetric cost may encourage bidders with fluctuating production to be more strategic in their way of bidding on the spot market by using such strategies the extra costs for example wind power needed to counter unpredictable fluctuations may be limited

bidding in sequential electricity markets the nordic case abstract for electricity market participants trading in sequential markets with differences in price levels and risk exposure it is relevant to analyze the potential of coordinated bidding we consider a nordic power producer who engages in the day ahead spot market and the hour ahead balancing market in both markets clearing prices and dispatched volumes are unknown at the time of bidding however in the balancing market the market participant faces an additional risk of not being dispatched taking into account the sequential clearing of these markets and the gradual realization of market prices we formulate the bidding problem as a multi stage stochastic program we investigate whether higher risk exposure may cause hesitation to bid into the balancing market furthermore we quantify the gain from coordinated bidding and by deriving bounds on this gain assess the performance of alternative bidding strategies used in practice

the impact of income shocks on health evidence from cohort data we study the eect of permanent income innovations on health for a prime aged population using information on more than half a million individuals sampled over a twenty five year period in three dierent cross sectional surveys we aggregate data by date of birth cohort to construct a synthetic cohort dataset with details of income expenditure socio demographic factors health outcomes and selected risk factors we then exploit structural and arguably exogenous changes in cohort incomes over the eighties and nineties to uncover causal eects of permanent income shocks on health we find that such income innovations have little eects on health but do aect health behaviour and mortality

offer stack optimization in electricity pool markets we consider a generator making offers of energy into an electricity pool market for a given time period it must submit an offer stack consisting of a fixed number of quantities of energy and prices at which it wants these quantities dispatched we assume that the generator cannot offer enough power to substantially affect the market price so the optimal response would be to offer energy at marginal cost however the market rules do not permit an arbitrary function so the problem is to find an offer stack approximating marginal cost in a way that maximizes its profit we give optimality conditions for this problem and derive an optimization procedure based on dynamic programming this procedure is illustrated by applying it to several examples with different costs of production

market offering strategies for hydroelectric generators this paper considers the problem of offering electricity produced by a series of hydroelectric reservoirs to a pool type central market the market model is a simplified version of the new zealand wholesale electricity market with prices modelled by a first order markov process the demand for electricity is not explicitly modelled the hydroelectric generator is assumed to be unable to influence market prices i e to be a price taker we discuss the resulting stochastic dynamic program methods for its solution and the explicit optimal offer curves that it produces it is shown that the utility function is monotone increasing with respect to both reservoir level and current price however the optimal offer curves need not be monotone this is shown by example numerical results are provided

the relative size of windfall income and the permanent income hypothesis a reconciliation is offered for the diverse test results on friedman s permanent income hypothesis a large data sample of those receiving windfall income in the bureau of labor statistics 1972 1973 consumer expenditure survey is divided according to the size of the windfall relative to estimated permanent income a pattern of a declining marginal propensity to consume windfall income as the relative size of the windfall increases is apparent these results support the permanent income hypothesis for relatively large windfalls

the value of life and the rise in health spending over the past half century americans spent a rising share of total economic resources on health and enjoyed substantially longer lives as a result debate on health policy often focuses on limiting the growth of health spending we investigate an issue central to this debate is the growth of health spending a rational response to changing economic conditions notably the growth of income per person we develop a model based on standard economic assumptions and argue that this is indeed the case standard preferences of the kind used widely in economics to study consumption asset pricing and labor supply imply that health spending is a superior good with an income elasticity well above one as people get richer and consumption rises the marginal utility of consumption falls rapidly spending on health to extend life allows individuals to purchase additional periods of utility the marginal utility of life extension does not decline as a result the optimal composition of total spending shifts toward health and the health share grows along with income in projections based on the quantitative analysis of our model the optimal health share of spending seems likely to exceed 30 percent by the middle of the century

does early access to pension wealth improve health we examine the health impacts of early access to public pension wealth by exploiting a unique policy in singapore allowing individuals to withdraw a proportion of their pension savings after their 55th birthday for the identification we employ a regression discontinuity design by comparing individuals before and after their 55th birthday to address anticipated and lagged health impacts we adopt the donut regression discontinuity approach using nationally representative monthly panel data we find that early access to pension wealth improves self reported overall health

exploring the dynamics of the shadow economy across us states this article examines the dynamics of the shadow economy using data for 50 us states over the period 1998 2008 using a panel var model we analyse the impulse response of the shadow economy to an orthogonal shock in capital tax rates educational attainment union participation and gross state product we find evidence of significant dynamics underlying the relationship between the shadow economy and its determinants the results remain robust to alternate measures of the determinants of the shadow economy alternate causal ordering of the variables in the system and conditioning on the level of income in each state

housing wealth and consumption a micro panel study there is strong evidence that house prices and consumption are synchronised there is however disagreement over the causes of this link this study examines if there is a wealth effect of house prices on consumption using a household level panel data set with information about house ownership income wealth and demographics for a large sample of the danish population in the period 1987 96 we model the dependence of the growth rate of total household expenditure with unanticipated innovations to house prices controlling for factors related to competing explanations we find little evidence of a housing wealth effect

the demand for health some new empirical evidence this paper presents some new estimates of the pure investment and pure consumption models of the demand for health in contrast to previous studies the paper presents parameter estimates of both reduced form and structural demand for health care equations the latter which are obtained by treating health capital as a latent variable in a recursive equation system provide a safer way of checking the consistency of the model s predictions with the data the present analysis of the pure consumption model differs from previous analyses in its recognition of the dependency of the shadow price of initial assets on the entire lifetime profiles of the model s exogenous variables the paper also explores the implications in terms of reliability of parameter estimates of the failure on the part of previous studies to recognize this

inheritances intergenerational transfers and the accumulation of health research on inheritances has largely focused on the motives of the bequeathing regardless of the motivations of the giving generation prior to death wealth is transferred and this additional money may have an impact on the receiving generation in particular inheritances may be correlated with individuals health for several reasons first there may be a causal effect inheritances provide additional financial resources allowing recipients to purchase inputs to health and health care a large literature on socioeconomic status ses and health investigates the effect of financial resources on health second inheritances may signal the overall strength of a dynasty this dynastic strength would manifest itself in both better health and more ability to leave a bequest inheritances could be associated with better health because parents who will eventually bequeath wealth to their children may have disproportionately higher ses which improves the health outcomes of the children third bequests and a bequest motive may signal a stronger interest in one s child this reminder to the child could improve his emotional well being this paper

strategic bidding for price taker hydroelectricity producers this paper introduces a stochastic programming model that integrates strategic bids or offers for electricity in quantities and prices in a deregulated electricity market the model is designed to maximize the profits of a producer of electricity who manages a series of power plants along a river the model is compared with a previously reported stochastic model where the bidding process is disregarded the superiority of the new model is empirically demonstrated on historical data