Housing, wealth, and consumption profiles of the elderly

This paper explores whether a life cycle model with housing, and non-market time can
account for housing, wealth, and consumption profiles of the elderly. A realistically calibrated, dynamic
partial equilibrium model where non-market time is a substitute for consumption expenditures, and a
complement to housing services is developed. Results are taken under di
erent values for the parameter of productivity at home. For all values of the productivity parameter,
these models explain the non-deaccumulation of wealth, housing, and actual consumption of the
elderly better than the standard model without non-market time. All of them also generate the hump
shaped life-cycle consumption expenditure profile. Simulation analysis suggests that bequest motives,
transaction costs, and health shocks are not the only factors behind the preservation of housing, and
wealth for the elderly. The increase in non-market time with retirement is also an important factor in
answering puzzling questions, such as, why do the elderly not liquidate their housing, why they keep
high amounts of wealth, and how they can keep the quality and quantity
of actual consumption unchanged despite lower consumption expenditures. This study could be useful
in the analysis of policy related to the elderly by predicting many decisions of the elderly
simultaneously.