Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/203325 
Year of Publication: 
2019
Series/Report no.: 
cege Discussion Papers No. 381
Publisher: 
University of Göttingen, Center for European, Governance and Economic Development Research (cege), Göttingen
Abstract: 
We integrate time-inconsistent decision making due to hyperbolic discounting into a gerontologically founded life cycle model with endogenous aging and longevity. Individuals can slow down aging and postpone death by health investments and by reducing unhealthy consumption, conceptualized as smoking. We show that individuals continuously revise their original plans to smoke less and invest more in their health. Consequently, they accumulate health deficits faster and die earlier than originally planned. This fundamental health consequence of time-inconsistency has not been addressed in the literature so far. Because death is endogenous, any attempt to establish the time-consistent first-best solution by manipulating the first order conditions through (sin-) taxes and subsidies is bound to fail. We calibrate the model with U.S. data for an average American in the year 2010 and estimate that time-inconsistent health behavior causes a loss of about 5 years of life. We show how price policy can nudge individuals to behave more healthy such that they actually realize the longevity and value of life planned at age 20.
Subjects: 
present bias
time-inconsistency
health behavior
aging
longevity
health policy
JEL: 
D03
D11
D91
I10
I12
Document Type: 
Working Paper

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