Wealth and health behavior: Testing the concept of a health cost

- We develop a theory of unhealthy consumption, wealth, and health.
- Health cost of consumption may explain why the rich drink more but smoke less.
- We exploit inheritance receipt and lottery winnings to test predictions.
- Effects are only apparent among the healthy, and stronger for the least wealthy.
- Empirical evidence suggests that differences in health costs may explain health behavior.

Wealthier individuals engage in healthier behavior. This paper seeks to explain this phenomenon by exploiting both inheritances and lottery winnings to test a theory of health behavior. We distinguish between the direct monetary cost and the indirect health cost (value of health lost) of unhealthy consumption. The health cost increases with wealth and the degree of unhealthiness, leading wealthier individuals to consume more healthy and moderately unhealthy, but fewer severely unhealthy goods. The empirical evidence presented suggests that differences in health costs may indeed partially explain behavioral differences, and ultimately health outcomes, between wealth groups.