Health 2 Demand for Health Care
- Created by: erised
- Created on: 19-04-18 16:29
Single Period
Health plays 3 roles:
- A consumption good
- An input into production
- A form of stock (investment).
Producing H and Z
Production functions:
- /
- /
- /
- /
- /
- Ht-1 = health a period t-1 (past health)
- M = market inputs for health e.g health care
- J = market inputs for Z e.g. video games.
Time and Budget Constraints.
Time
Only 24 hours in the day.
- /
- /
- Ts - does not contribute to H or Z = does not increase utility. Individual cannot choose it. Determined by H
Budget
If an individual work, total income for each t is:
Budget constraint:
Time and budget - not independent. Linked through decisions about Tw. E.g. more healthy means less T and more productive time.
Labour - Leisure Trade-off
- Choice between Tw and Tz.
- When health improves = more productive time in available.
- pushes constraint outwards
- can reach higher utilities.
PPF
- All combinations of H and Z attainable given the budget and time contstraints:
- A - no productive time for work, play of health.
- B- "free lunch zone". Small improvements in H produces large improvements in productive time. Can increase Z without giving up too much of H. Diminshing marginal returens to productive times from health.
- C- One extra hour spent of H produces one extra hours in productive time. Max Z. Cant't improve H without taking away Z.
- D- "trade off zone". Increases in H only yeild small decreases in sick time. Takes away from Z.
- E- All time and money spent on H.
Choosing H* and Z*?
- F is optimal
- U2 is attainable
- U0 can get a higher utility
- U1 and PPF are at a tangent. Highest utlity possible.
- H* and Z* is the optimal levels of H and Z
- H*<Hmax - willing to give up H for other goods.
- Z*<Zmax - values H aswell.
People make tradeoffs that lead to less than Hmax.
Exotic Preferences
Only cares about Z Only cares about H
- Horizontal indifference curves Vertical indifference curves
- Z* and H* at point C Z* and H* at point E
- Still resonable level of H, at H=0, =dead
=no time for Z.
Multi-period
An indivdual considers future utilty aswell:
- discount rate. Values utility now more than in the future.
- lifespan (total number of periods)
Health in an investment good - a form of human capital. It depreciates over time. Production function:
- rate of depreciation - how fast H dissipates between periods.
MEC
Marginal Efficiency of Capital (MEC) curve: indicates how efficient each unit of health capital is in increasing lifetime utility.
When H is low, small improvements have high returns to productive time.
Costs in Investing in Health
- Oppurtunity cost
- individuals forgo putting money into other investments.
- Measured by r = interest rate of alternative market investment.
- Depreciation - due to ageing
- Health ust pay a return of atleast
- If return is less, than the market return beats health investment return.
- H* - marginal cost balances with marginal benefit of health investent.
Is the Model Useful?
Been used to study 2 issues:
- Why better health is concentrated among better educated?
Example
College graduates (MECc) vs. High school dropouts (MEC). Same preferences towards labour and lesuire
Is the Model Useful?
- Declining health among ageing
is not constant - increases with age.
increases and it takes more resources to maintain same level of health.
As a result H* declines.
Increasing makes it less and less attractive to invest in
scarce recources in health. More reckless in old age.
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