1

Economics 5. Positive Income Shocks. A recent paper entitled "Inheritances, Health, and Death" by Beomsoo Kim and Christopher Ruhm reports the following: We examine how wealth shocks, in the form of inheritances, affect the mortality rates, health status and health behaviors of older adults, using data from eight waves of the Health and Retirement Survey (HRS). Our main finding is that be- quests do not have substantial effects on health, although some improvements in quality-of-life are possible. This absence occurs despite increases in out-of- pocket (OOP) spending on health care and in the utilization of medical services, especially discretionary and non-lifesaving types such as dental care. Nor can we find a convincing indication of changes in lifestyles that offset the benefits of increased medical care. Inheritances are associated with higher alcohol consumption, but with no change in smoking or exercise and a possible decrease in obesity. Interpret these findings using the Grossman model as a framework. In particular, comment on how exogenous income shocks change decisions about health status in the Grossman model