Closing down the shop: Optimal health and wealth dynamics near the end of life

Near the end of life, health declines, mortality risk increases, and curative care is replaced by uninsured long-term care, accelerating the fall in wealth. Whereas standard explanations emphasize inevitable aging processes, we propose a complementary closing down the shop justification where agents' decisions affect their health and the timing of death. Despite preferring to live, individuals optimally deplete their health and wealth towards levels associated with high death risk and gradual indifference between life and death. Reinstating exogenous aging processes reinforces the relevance of closing down. Using Health and Retirement Study–Consumption and Activities Mail Survey data for elders, a structural estimation of the closed-form decisions identifies, tests, and confirms the relevance of closing down. © 2019 John Wiley & Sons, Ltd.

Export Date: 13 January 2020CODEN: HEECECorrespondence Address: Pelgrin, F.; Department of Data Science, Economics and Finance, EDHEC Business SchoolFrance; email: Florian.PELGRIN@edhec.edu