Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Gothenburg, Department of Economics

No 734: Optimal Investment in Health when Lifetime is Stochastic, or, Rational Agents do not Often Follow Health Agency Recommendations

Kristian Bolin () and Michael R. Caputo
Additional contact information
Kristian Bolin: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: P.O. Box 640, SE 40530 GÖTEBORG, Sweden
Michael R. Caputo: Department of Economics University of Central Florida

Abstract: A health-capital model is contemplated which accounts for the consumption of many goods, a stock of health and investment in it, as well as an agent’s random lifetime and accumulation of wealth. It is shown that if an agent maximizes the expected discounted value of lifetime utility, or if an agent maximizes the expected value of their lifetime, then an agent does not follow the health-investment policy that minimizes the conditional probability of dying at each point in time, in general. What is more, simple and intuitive sufficient, and necessary and sufficient, conditions are identified whereby such agents investment more or less in their health than said policy.

Keywords: health capital; health investment; optimal control; random lifetime

JEL-codes: C61; D11; I12

16 pages, August 2018

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