Optimal health investment and preferences structure

Abstract : This paper develops a general equilibrium framework to study the role of preferences structure (additive, multiplicative and convex combination of both) in connecting consumption, health investment, stock of health and capital, and their effects on the wage rate and on productivity. We show that the elasticities of health production, health investment and health cost determine jointly how health influences the wage rate. We examine the steady state and the equilibrium dynamics of the model. In the case of additive preferences, the existence of equilibrium and the stability of the dynamic system require that the ratio of the elasticities of the cost of health and health investment is greater than the elasticity of the production function of health. Health stock can have either positive or negative effects on wage rate. The reverse holds for multiplicative preferences and the effect of health stock on wage rate is always positive. L ongevity is a decreasing convex-concave function of the elasticity of inter-temporal substitution of health. We also compare the relative behavior of opportunity costs of health under preferences structure.
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Submitted on : Wednesday, April 22, 2015 - 4:49:48 PM
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T Azomahou, Bity Diene, Mbaye Diene, Luc Soete. Optimal health investment and preferences structure. 2015. ⟨halshs-01144802⟩

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