Karen A. Kopecky

The Impact of Medical and Nursing Home Expenses and Social Insurance Policies on Savings and Inequality

We consider a life-cycle model with idiosyncratic risk in earnings, out-of-pocket medical and nursing home expenses, and survival. Partial insurance is available through welfare, Medicaid, and social security. Calibrating the model to the United States, we show that (1) savings for old-age, out-of-pocket expenses account for 13.5 percent of aggregate wealth, half of which is due to nursing home expenses; (2) cross-sectional out-of-pocket nursing home risk accounts for 3 percent of aggregate wealth and substantially slows down wealth decumulation at older ages; (3) the impact of medical and nursing home expenses on private savings varies significantly across the lifetime earnings distribution; and (4) all newborns would benefit if social insurance for nursing home stays was made more generous.

Old, Sick, Alone, and Poor: A Welfare Analysis of Old-Age Social Insurance Programs

All individuals face some risk of ending up old, sick, alone, and poor. Is there a role for social insurance for these risks and, if so, what is a good programme? A large literature has analysed the costs and benefits of pay-as-you-go public pensions and found that the costs exceed the benefits. This article, instead, considers means-tested social insurance (MTSI) programmes for retirees such as Medicaid and Supplemental Security Income. We find that the welfare gains from these programmes are large. Moreover, the current scale of MTSI in the U.S. is too small in the following sense. If we condition on the current Social Security programme, increasing the scale of MTSI by 1/3 benefits both the poor and the affluent when a payroll tax is used to fund the increase.

A Quantitative Analysis of Suburbanization and the Diffusion of the Automobile

Suburbanization in the U.S. between 1910 and 1970 was concurrent with the rapid diffusion of the automobile. A circular city model is developed in order to access quantitatively the contribution of automobiles and rising incomes to suburbanization. The model incorporates a number of driving forces of suburbanization and car adoption, including falling automobile prices, rising real incomes, changing costs of traveling by car and with public transportation, and urban population growth. According to the model, 60 percent of postwar (1940-1970) suburbanization can be explained by these factors. Rising real incomes and falling automobile prices are shown to be the key drivers of suburbanization.