Marginal Utility Shocks and the Precautionary Saving Puzzle
Abstract: This paper introduces a novel mechanism linking wealth accumulation to shocks in marginal utility rather than income alone. In contrast to the Bewley–Aiyagari–Huggett (BAH) framework, where savings eventually decline with wealth, I show that when households face idiosyncratic longevity shocks that alter the continuation value of utility, saving can remain strictly positive above some threshold. The model predicts that maintaining marginal utility becomes a luxury relative to consumption, inducing precautionary saving even among the wealthy. Using Health and Retirement Study (HRS) data on U.S. couples aged 55–65, I document that saving and saving rates rise with wealth, contrary to BAH predictions. Calibrating the model with health and income transitions, I find that the mechanism accounts for more than one-quarter of observed average savings. The results imply that precautionary motives, rather than bequest or return heterogeneity, drive much of the saving behavior at the top of the wealth distribution.
Imputing Total Medical Expenditure and the Medical Spending–Wealth Gradient
Abstract: Using out-of-pocket medical spending data from the Health and Retirement Study (HRS), this paper documents a sharp decline in medical spending among single-member households aged 55–64 in the second and third wealth deciles. Because out-of-pocket spending may understate true medical costs when households are well-insured, we impute total medical expenditure using the Medical Expenditure Panel Survey (MEPS) as a donor sample. The dip persists in total spending, indicating that these households are not heavily insured. We propose a stylized model in which a lower asset threshold for means-tested insurance generates this pattern through strategic asset decumulation.
Online Innovation, Market Entry and Competition in Remote Indigenous Communities