The Double Facetted Nature of Health Investments - Implications for Equilibrium and Stability in a Demand-for-Health Framework

A number of behaviours influence health in a non-monotonic way. Physical activity and alcohol consumption, for instance, may be beneficial to one’s health in moderate but detrimental in large quantities. We develop a demand-for-health framework that incorporates the feature of a physiologically optimal level. An individual may still choose a physiologically non-optimal level, because of the trade-off in his or her preferences for health versus other utility-affecting commodities. However, any deviation from the physiologically optimal level will be punished with respect to health. A set of steady-state comparative statics is derived regarding the effects on the demand for health and health-related behaviour, indicating that individuals react differently to exogenous changes, depending on the amount of the health-related behaviour they demand. We also show (a) that a steady-state equilibrium is a saddle-point and (b) that the physiologically optimal level may be a steady-state equilibrium for the individual. Our analysis suggests that general public-health policies may, to some extent, be counterproductive due to the responses induced in part of the population.

Optimizing cost-efficiency in mean exposure assessment - cost functions reconsidered

Background: Reliable exposure data is a vital concern in medical epidemiology and intervention studies. The present study addresses the needs of the medical researcher to spend monetary resources devoted to exposure assessment with an optimal cost-efficiency, i.e. obtain the best possible statistical performance at a specified budget. A few previous studies have suggested mathematical optimization procedures based on very simple cost models; this study extends the methodology to cover even non-linear cost scenarios. Methods: Statistical performance, i.e. efficiency, was assessed in terms of the precision of an exposure mean value, as determined in a hierarchical, nested measurement model with three stages. Total costs were assessed using a corresponding three-stage cost model, allowing costs at each stage to vary non-linearly with the number of measurements according to a power function. Using these models, procedures for identifying the optimally cost-efficient allocation of measurements under a constrained budget were developed, and applied on 225 scenarios combining different sizes of unit costs, cost function exponents, and exposure variance components. Results: Explicit mathematical rules for identifying optimal allocation could be developed when cost functions were linear, while non-linear cost functions implied that parts of or the entire optimization procedure had to be carried out using numerical methods. For many of the 225 scenarios, the optimal strategy consisted in measuring on only one occasion from each of as many subjects as allowed by the budget. Significant deviations from this principle occurred if costs for recruiting subjects were large compared to costs for setting up measurement occasions, and, at the same time, the between-subjects to within-subject variance ratio was small. In these cases, non-linearities had a profound influence on the optimal allocation and on the eventual size of the exposure data set. Conclusions: The analysis procedures developed in the present study can be used for informed design of exposure assessment strategies, provided that data are available on exposure variability and the costs of collecting and processing data. The present shortage of empirical evidence on costs and appropriate cost functions however impedes general conclusions on optimal exposure measurement strategies in different epidemiologic scenarios

Asymmetric Information and the Demand for Voluntary Health Insurance in Europe

Several past studies have found health risk to be negatively correlated with the probability of voluntary health insurance. This is contrary to what one would expect from standard textbook models of adverse selection and moral hazard. The two most common explanations to the counter-intuitive result are either (1) that risk-aversion is correlated with health — i.e. that healthier individuals are also more risk-averse — or (2) that insurers are able to discriminate among customers based on observable health-risk characteristics. We revisited these arguments, using data from the Survey of Health, Ageing and Retirement in Europe (SHARE). Self-assessed health served as an indicator of risk: better health, lower risk. We did, indeed, observe a negative correlation between risk and insurance but found no evidence of heterogeneous risk-preferences as an explanation to our finding.

Non-monotonic health behaviours - implications for individual health-related behaviour in a demand-for-health framework

A number of behaviours influence health in a non-monotonic way. Physical activity and alcohol consumption, for instance, may be beneficial to one’s health in moderate but detrimental in large quantities. We develop a demand-for-health framework that incorporates the feature of a physiologically optimal level. An individual may still choose a physiologically non-optimal level, because of the trade-off in his or her preferences for health versus other utility-affecting commodities. However, any deviation from the physiologically optimal level will be punished with respect to health. A set of steady-state comparative statics is derived regarding the effects on the demand for health and health-related behaviour, indicating that individuals will react differently to exogenous changes, depending on the amount of the health-related behaviour they demand. We also show (a) that a steady-state equilibrium is a saddle-point and (b) that the physiologically optimal level may be a steady-state equilibrium for the individual. Our analysis suggests that general public-health policies may, to some extent, be counterproductive due to the responses induced in parts of the population.JEL: I1

Parental Investments in Child Health – the importance of paternalistic altruism, child egoism and short-sightedness

Parent and child interaction is an important determinant of child health. Typically, parents are more forward-looking than their children and, hence, care about investments in human capital to a larger extent. In this paper we consider the parent-child health-related interaction, when the parent is altruistic and forward-looking and the child is egoistic and short-sighted. The child receives a monetary transfer, from the parent, which is used to finance either health-unrelated consumption or unhealthy behaviour. We apply a simple differential-game approach, assuming linear-state preferences, and study equilibrium time-paths of (a) the parental transfer, (b) the unhealthy behaviour, and (c) the stock of child health capital. We distinguish between the case in which the child is perfectly myopic and the case in which he or she is forward looking.JEL: I1

Consumption and Investment Demand when Health Evolves Stochastically

The health capital model of Grossman (1972) is extended to account for uncertainty in the rate at which a stock of health depreciates. Two versions of the model are contemplated, one with a fully functioning financial market and the other in its absence. The comparative dynamics of the consumption and health-investment demand functions are studied in both models in a general setting, where it is shown that the key to deriving refutable results is to determine how a parameter or state variable affects the lifetime marginal utilities of health and wealth. To add further bite to the results, a stochastic control problem is solved for its feedback consumption and health-investment demand functions, thereby yielding estimable structural demand functions.JEL: C61; D11; I1

Optimal Investment in Health when Lifetime is Stochastic, or, Rational Agents do not Often Follow Health Agency Recommendations

A health-capital model is contemplated which accounts for the consumption of many goods, a stock of health and investment in it, as well as an agent’s random lifetime and accumulation of wealth. It is shown that if an agent maximizes the expected discounted value of lifetime utility, or if an agent maximizes the expected value of their lifetime, then an agent does not follow the health-investment policy that minimizes the conditional probability of dying at each point in time, in general. What is more, simple and intuitive sufficient, and necessary and sufficient, conditions are identified whereby such agents investment more or less in their health than said policy.JEL: C61; D11; I1

An Economic Analysis of Marriage and Divorce

The first chapter develops a theoretical model of marriage and divorce. The model has two periods and assumes Pareto efficient time allocations. There is a risk of divorce in the second period, which is modeled as exogenously given. The second chapter utilizes the model developed in the previous chapter to analyze the equality between married men and women. Equality is defined as the spouses' relative weights in the objective function of the family. The weights are decided by pre-marriage Nash bargaining. One result is that better career opportunities imply that the family objective function puts more weight on that spouse's preferences. The third chapter also makes use of the model developed in the first chapter. In this chapter the divorce rule, i.e., the rule according to which the economic consequences of divorce are governed, is analyzed. The main result is that the presence of children at divorce - something which preserves the connection between the spouses' preferences - affects the optimal divorce rule. In the absence of children it is not optimal to combine a division of joint property with alimony or child support. In the presence of children it might be optimal to have a rule which says that joint property shall be divided between the spouses and that one spouse shall pay spousal support or child support to the other spouse. The fourth chapter relaxes the assumption that all decisions may be subject to binding agreements between the spouses. Taking the time allocations as individually decided we analyze the rationale for spousal support. We find similarities between spousal support that induces efficient marital behavior and what would be given by the theory of breach of contract if divorce is regarded as breach by one party. In the fifth chapter we continue the approach from the previous chapter, but we assume that the husband dominates, i.e., that he has a first mover advantage in the process which settles the time allocations. We argue that comparative advantages do not constitute a comprehensive explanation for the division of market and household labor between the spouses, but that also the timing of decisions is important. The sixth chapter recognizes that the parents' altruism towards their children has effects on the time allocations. Using the same type of model as in the two previous chapters we show that relative parental altruism may be another explanation for the division of the spouses' time between market and non-market activities. The seventh chapter examines the risk of divorce empirically, using Swedish data. The results are rather surprising as they do not unambiguously support what can be regarded as the prevailing theoretical and empirical knowledge regarding marital stability. For example, we conclude that the female earning capacity of women is not destabilizing the marrige. On the contrary our findings seem to point in the opposite direction. As expected we find that children are stabilizing the marriage, which is in Iine with the conventional wisdom. We also examine the effects of the spouses' time allocations and education levels on marital stability. We find that the time which the wife does not allocate to the market is more important for the marital stability than the time which the husband does not allocate to the market. As regards education only the effect of the husband's education seems to be important. The husband's education level is positively related to the stability of marriage. Rather surprisingly we find that pre-marriage cohabitation seems to be destabilizing for marriage