An Economic Theory of Depression and its Impact on Health Behavior and Longevity

Abstract In this paper, I propose an economic theory of depression and its impact on health behavior and longevity. Based on studies from happiness research, depression is conceptualized as a drastic loss of utility and value of life for unchanged fundamentals. The model is used to explain how untreated depression leads to unhealthy behavior and adverse health outcomes: depressed individuals are predicted to save less, invest less in their health, consume more unhealthy goods, and exercise less. As a result, they age faster and die earlier than non-depressed individuals. I calibrate the model for an average American and discus how depression enlarges the socioeconomic gradient of health and consider feedback effects of depression on earnings and of physical exercise on depression as well as a variety of depression shocks. Delays in treatment for depression in young adulthood are predicted to have significant repercussions on late-life health outcomes and longevity.