The role of dietary choices and medical expenditures on health outcomes when health shocks are endogenous

This paper presents a theoretical framework that incorporates both a role for preventive actions (through food choices) and treatment (through medical services) to improve health outcomes. In particular, we allow for an agent's calorie decision to alter the distribution of future health shocks. Once a shock is realized, medical care can be used to improve health outcomes. Thus this model can help us determine the role of the preventive actions and treatments in producing better health outcomes and study the links between an agent's choice of medical services and her diet. This framework suggests that wealthier individuals, on average, have lower morbidity rates and lead a healthier lifestyle than lower income agents. Finally, our numerical exercise captures U.S. cross-sectional facts regarding the choice of diet, medical expenditures as well as health and non-food expenditures.