OPTIMAL INTERTEMPORAL CONSUMPTION DECISIONS UNDER THE THREAT OF STARVATION

This paper studies consumption and saving decisions over time in a lif e cycle model in which survival from one period to the next is endogen ous. Survival probabilities depend on health, which is a capital stock subject to depreciation and which can be augmented by consumption (nu trition). Borrowing is ruled out in our model and we investigate optim al consumption decisions when income fluctuates at seasonal frequencie s and when income follows a stochastic process. Among other results, w e show that understanding the pattern of income is necessary for under standing consumption decisions when survival is probabilistic and endo genous.