The long-term care problem, precautionary saving, and economic growth

This paper examines the interaction between decisions about financing after-retirement health shocks and precautionary saving motives, and how this interaction affects economic development. We show that at low levels of income, individuals choose not to save to finance the cost of after-retirement health shocks. However, once individuals become sufficiently rich, they do choose to save to finance the cost of these shocks. This change in individual saving behavior may give rise to multiple steady state equilibria.