Working Paper: NBER ID: w23963
Authors: Mariacristina De Nardi; Svetlana Pashchenko; Ponpoje Porapakkarm
Abstract: What generates the observed differences in economic outcomes by health? How costly it is to be unhealthy? We show that health dynamics are largely driven by ex-ante fixed heterogeneity, or health types, even when controlling for one’s past health history. In fact, health types are the key driver of long spells of bad health. We incorporate these rich health dynamics in an estimated structural model and show that health types and their correlation with other fixed characteristics are important to account for the observed gap in economic outcomes by health. Monetary and welfare losses due to bad health over the life cycle are large, concentrated, and to a large extent due to factors pre-determined earlier in life. A large portion of the related monetary costs is due to income losses, especially for people of working age, while a substantial portion of the welfare losses arises because health affects life expectancy.
Keywords: health economics; economic outcomes; health types; lifetime costs; structural model
JEL Codes: E21; H31; I14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| health types (I12) | health dynamics (I14) |
| health dynamics (I14) | labor productivity (J24) |
| fixed heterogeneity (C21) | health types (I12) |
| bad health (I12) | welfare costs (I30) |
| bad health (I12) | life expectancy (J17) |
| fixed heterogeneity (C21) | health trajectories (I12) |
| health types (I12) | economic outcomes (F61) |
| health dynamics (I14) | economic outcomes (F61) |
| labor productivity (J24) | health types (I12) |