Health, Longevity, and Welfare Inequality of the Elderly

 We propose a framework to understand the distribution of individual wellbeingand its change over time with an application to the U.S. elderly population.Using data from the Health and Retirement Study, we estimate life-cycle dynamicsand simulate individual outcome paths starting from age sixty. We use anexpected utility framework and the simulated profiles to construct a measure ofindividual welfare that incorporates differences in consumption, leisure, health,and mortality. Our measure suggests substantial variation in welfare across individualsdriven foremost by gaps in health and mortality followed by gaps inconsumption. Incorporating the utility cost of living with poor health into elderlywelfare substantially increases overall inequality. Elderly welfare inequality hasincreased over time due to growing gaps in consumption, health, and mortality.Disparity measures based on cross-sectional income or consumption at age sixtyunderestimate aggregate welfare inequality. Moreover, health at age sixty is abetter indicator of individual well-being rank than income or consumption.