Health Inequality over the Life-Cycle

We estimate a dynamic model of health that is rooted in 'stress models' from Epidemiology. Health is determined by time-invariant endowments, permanent shocks, and transitory shocks. We estimate that the variance in health at age 60 ranges between 2.5 and five times its variance at age 25 depending on which demographic group we consider. We show that the stress model performs better than a simple alternative, the random effects Probit, particularly for less educated people.