Endogenous Health in a Model of Calories, Medical Services and Health Shocks

This paper presents a theoretical framework that incorporates both preventive actions and treatment opportunities to study health outcomes. In particular, we allow for an agent's eating decision to alter the distribution of future health shocks. Once a shock is realized medical care can be used to improve her health. Thus, choosing a healthier diet is a form of self-protection while medical expenditures are a form of self-insurance. The model helps rationalize why agents choose to be overweight even though they are fully aware of its adverse health consequences. Moreover, this framework predicts that wealthier individuals, on average, have lower morbidity rates and lead a healthier lifestyle. Finally, our numerical exercise captures U.S. cross-sectional facts regarding the choice of diet, medical expenditures as well as health and non-food expenditures.