A Theory of Education, Health and Longevity

We present a theory of human capital, with its two most essential components, health capital and, what we term, skill capital, endogenously determined within the model. Using the theory, we uncover and highlight an important economic mechanism by which causal relations, self-productivity and dynamic complementarity, among the stocks of wealth, skill and health arise, namely whether individuals can influence their own length of life (endogenous longevity). The model may provide an explanation as to why, despite strong associations between education and health, the empirical literature often finds small causal effects among them, and why generally causal estimates exhibit substantial heterogeneity depending on the context. The mechanism also suggests that even though contemporaneous improvements in health may be concentrated at older ages, the longer horizon and the benefits from the enjoyment of additional years of life, may well provide the incentives for investments in human capital when young. Our main predictions are derived from the analytical solutions of a simplified model, but we confirm that they hold also in a more general model that we calibrate on empirical data.