Abstract
The paper studies the interaction between saving and tertiary health prevention in a two-period framework where future decline in health is certain. The cost of investment in prevention occurs in the health attribute and future benefits include an increase in the probability of receiving treatment and a partial recovery of health if treated. In this framework, we show that the effects of changes in the returns on saving and on tertiary prevention depend on agent's correlation attitude (either correlation aversion or correlation loving). Furthermore, we study how prudence/imprudence in health and cross-prudence/imprudence in wealth determine the impact of a background health risk on optimal choices. Finally, we analyze the effect of high-order preferences in case of high-degree risk changes.
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