Lifetime Well-Being

Abstract

This chapter reviews recent contributions in positive and normative economics concerned with how individuals plan, over their uncertain lifetime, their consumption and health-affecting activities, and with the design of the optimal public policy in that context. The chapter first emphasizes that contemporary theories aimed at explaining how individuals plan their lives rely on unequal forms and degrees of rationality. On the normative side, it argues that there exists a tension between, on the one hand, optimal policies derived from a utilitarian social welfare function, and, on the other hand, optimal policies derived from an ex post egalitarian social welfare function. Actually, optimal policies under utilitarianism—encouraging savings, annuitization, and prevention—increase expected lifetime well-being, but at the cost of reducing the realized lifetime well-being of the unlucky short-lived, which raises inequalities in realized lifetime well-being.