2015

Aim: The design of pension and health care policies for the elderly requires that we understand the expenditure decisions of the old. Two fundamental characteristics of the elderly are that their health worsens with age and that it does so at different rate for people in different socio-economic groups (Pijoan-Mas and Rıos-Rull (2015)). The question that we plan to address is how do age and health shape preferences and consumption decisions. Surprisingly, very little work exploring effects of health on consumption Specifically, we aim to estimate the effect of health on the marginal utility of consumption. For this we use a model where the evolution of health is itself endogenous. However, we only need to use the consumption Euler equation to estimate structural parameters. This feature greatly reduces the complications of the process and allows us to be agnostic about how is the actual technology that improves health. We exploit plan to exploit differences in consumption growth by age, education, wealth, and health groups that provide enough variation to allow for identification. We use estimates of health transitions by age, education, and wealth that we can interpret as the outcome of optimal behavior and that provide the variation in the data necessary to produce tight estimates.

Aim: In this proposed pilot project, we aim to demonstrate that in the presence of intergenerationally-correlated endowments, the many studies that purport to estimate the effects of parental and grandparental characteristics on child outcomes are misinterpreted in ways that are likely to overstate substantially direct parental effects and indirect grandparental effects, and maybe even have the sign wrong for direct grandparental effects. By “intergenerationally-correlated endowments” we mean important factors that affect the outcomes of interest that are usually not observed in social science data, and that are transmitted from one generation to the next, such as family culture or genes. The basic purposes of this pilot project are to develop this point, summarize and reinterpret three-generational studies in the literature in light of this point, develop a model that will permit identification of grandparental effects with data on four generations, locate data across four generations, and then prepare a National Institute of Health (NIH) grant application to explore and reinterpret intergenerational relations in depth to understand better their causal nature.