The economic effects of nonlinear health dynamics: estimates from a dynamic life-cycle model

We study how nonlinear, state-dependent health dynamics shape economic behavior, inequality, and the evaluation of disability insurance at older ages. Using English panel data, we construct a continuous health index and estimate its dynamics with a flexible quantile-based method that allows persistence to vary across health states. We find that adverse health realizations are both larger and more persistent among individuals in poor health. Embedding the estimated process into a life-cycle model...