Uncertain lifetime, life protection, and the value of life saving

Valuing life over the life cycle

Adjusting the valuation of life along the (i) person-specific (age, health, wealth) and (ii) mortality risk-specific (beneficial or detrimental, temporary or permanent changes) dimensions is relevant in prioritizing healthcare interventions. These adjustments are provided by solving a life cycle model of consumption, leisure and health choices and the associated Hicksian variations for mortality changes. The calibrated model yields plausible Values of Life Year between 154K$ and 200K$ and Values of Statistical Life close to 6.0M$. The willingness to pay (WTP) and to accept (WTA) compensation are equal and symmetric for one-shot beneficial and detrimental changes in mortality risk. However, permanent, and expected longevity changes are both associated with larger willingness for gains, relative to losses, and larger WTA than WTP. Ageing lowers both variations via falling resources and health, lower marginal continuation utility of living and decreasing longevity returns of changes in mortality.

A health economic theory of occupational choice, aging, and longevity

In this paper, I propose a life cycle model of occupational choice with endogenous health behavior, aging, and longevity. Health-demanding work leads to a faster accumulation of health deficits and is remunerated with a hazard markup on wages. Health deficit accumulation is also influenced by unhealthy consumption and health care expenditure. I calibrate the model for a 20 year old average American in 2010 and show the following results, among others. Health-demanding work is ceteris paribus preferred by male, young, and healthy individuals with a relatively low level of education. Health demanding work has a negligible effect on health behavior because income and health investment effects largely offset each other, implying that health effects can be attributed almost fully to the direct health burden of work. Better medical technology induces low-skilled individuals to spend a greater part of their life in health-demanding work and thus increases the health gradient of education. High wealth endowments protect against unhealthy occupational choices. I show robustness of the results in an extension of the model with regard to endogenous retirement.

A Theory of Socio-economic Disparities in Health over the Life Cycle

Motivated by the observation that medical care explains only a relatively small part of the SES-health gradient, we present a life-cycle model that incorporates several additional behaviours that potentially explain (jointly) a large part of observed disparities. As a result, the model provides not only a conceptual framework for the SES-health gradient but more generally an improved framework for the production of health. We derive novel predictions from the theory by performing comparative dynamic analyses. More generally, our comparative dynamic method can be applied to models of similar form, e.g., human capital, health deficits, firm investment, to name a few.

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 above or below the physiologically optimal level will be punished with respect to health. Distinguishing between two individual types we study (a) the qualitative properties of optimal time-paths of health capital and health-related behaviour, (b) the perturbations of the optimal time-paths that result from changes in exogenous parameters, and (c) steady state properties. Predictions of the model and the implications for empirical analysis are discussed at length. Some comments on potential future extensions conclude the paper.

Life cycle responses to health insurance status

This paper studies the lifetime effects of exogenous changes in health insurance coverage (e.g. Medicare, PPACA, termination of employer-provided plans) on the dynamic optimal allocation (consumption, leisure, health expenditures), status (health and wealth), and welfare. We solve, simulate, and structurally estimate a parsimonious life cycle model with endogenous exposure to morbidity and mortality risks, and exogenous health insurance. By varying coverage, we identify the marginal effects of insurance when young and/or when old on allocations, statuses, and welfare. Our results highlight positive effects of insurance on health, wealth and welfare, as well as mid-life substitution away from healthy leisure in favor of more health expenses, caused by peaking wages, and accelerating health issues.

Targeting Type 2: Linguistic Agency Assignment in Diabetes Prevention Policy Messaging

We explored the effects of linguistic agency assignment on the persuasive impact of a fictitious medical journal editorial about Type 2 diabetes. Participants (N = 422) read 1 of 4 versions of an editorial that differed in the language used to describe the health threat posed by the disease (threat agency) and to outline a program for preventing it (prevention agency). Threat agency was assigned either to the disease (e.g., diabetes puts individuals' lives at risk) or to humans (e.g., individuals who acquire diabetes put their lives at risk). Prevention agency was assigned either to the recommended prevention behaviors (e.g., a healthy diet and regular exercise protect children from Type 2) or to humans (e.g., children who eat a healthy diet and exercise regularly protect themselves from Type 2). Respondents' perceptions of disease severity were higher when threat agency was assigned to diabetes rather than humans. However, attitudes toward the proposed prevention program were higher when prevention agency was assigned to humans rather than to the recommended behaviors. The latter finding contrasts with agency effects observed in previous research on a viral threat, suggesting that the optimal pattern of agency assignment in prevention messaging may be different for acute and chronic lifestyle diseases.

Intertemporal discounting as a risk factor for high BMI: evidence from Australia, 2008

This paper explores the relationship between intertemporal discounting and body weight, using stated preference measures of intertemporal discounting, and the body mass index (BMI) to represent relative body weight. The empirical analysis uses Australian data obtained in 2008 through the South Australian Health Omnibus Survey. A quantile regression analysis is used to allow the marginal effects of the explanatory variables on BMI to vary across the conditional BMI distribution. It is shown that an indicator of intertemporal discounting elicited from a hypothetical monetary trade-off has a significant positive relationship with BMI. This relationship appears to be stronger in the upper quantiles, but there is insufficient statistical evidence for this difference. Evidence is presented that intertemporal discounting is a risk factor for increased BMI with a magnitude of effect comparable to more commonly recognized risk factors such as income and education. However there is no significant relationship found between BMI and an alternative indicator of intertemporal discounting elicited from trade-offs in health status.

Evaluating the redistributive impact of public health expenditure using an insurance value approach

This article analyses the redistributive impact of public health expenditure in Spain using an insurance value approach to compute individual and household's value of health services non-cash benefit. We model the intensity of use of different health care services using a count data framework on a nationally representative health care survey and then predict probabilities on the 2006 Spanish EU-SILC sample. This allows us to extend disposable income with the expected monetary value of public health services and to compare it with strictly cash income. Since non-cash income due to public health services is associated with health needs, we use needs-adjusted equivalence scales to perform distributional analysis and poverty/inequality comparisons. The results show that public health expenditure in Spain acts progressively on income distribution, and that health in-kind benefits, once considered as part of disposable income, can be extremely effective in reducing poverty and inequality.

Does the US health care safety net discourage private insurance coverage?

The large and growing uninsured population poses an alarming threat to the US health care system, and is a major target of the Obama health reform. This paper investigates analytically and empirically the degree to which the absence of health insurance in the US reflects the availability of the health care safety net, such as the guaranteed or charitable care provided by emergency rooms, community health centers and physicians. Our theoretical model demonstrates that the safety net can be a real alternative to health insurance, thus discouraging private insurance purchase in the market setting. In particular, when the community premium rate fails to reflect the value of such resources, not purchasing insurance becomes a rational decision for a sizeable portion of the population. The calibrated simulation based on US statistics indicates about 15.75% of the uninsured population, or 7.2 million people in US, are attributable to the existing safety net system. Further empirical analysis using nationally representative data shows consistently that the presence of local safety net resources may reduce the probability of individual insurance purchase by as much as 45.9%.

Health, Education, and the Post-Retirement Evolution of Household Assets

We explore the relationship between education and the evolution of wealth after retirement. Asset growth following retirement depends in part on health capital and financial capital accumulated prior to retirement, which in turn are strongly related to educational attainment. These "initial conditions" at retirement can have a lingering effect on subsequent asset evolution. We aim to disentangle the effects of education that operate through health and financial pathways (such as Social Security benefits and the general level of health) prior to retirement from the effects of education that impinge directly on asset evolution after retirement. We also consider the additional effects of education that are not captured through these pathways. We find a substantial effect of education on asset growth through each of the pathways as well as a substantial additional effect not captured by the identified pathways.

Externalities in a life cycle model with endogenous survival

We study socially vs individually optimal life cycle allocations of consumption and health, when individual health care curbs own mortality but also has a spillover effect on other persons' survival. Such spillovers arise, for instance, when health care activity at aggregate level triggers improvements in treatment through learning-by-doing (positive externality) or a deterioration in the quality of care through congestion (negative externality). We combine an age-structured optimal control model at population level with a conventional life cycle model to derive the social and private value of life. We then examine how individual incentives deviate from social incentives and how they can be aligned by way of a transfer scheme. The age-patterns of socially and individually optimal health expenditures and the transfer rate are derived. Numerical analysis illustrates the working of our model.

The reproductive value in distributed optimal control models

We show that in a large class of distributed optimal control models (DOCM), where population is described by a McKendrick type equation with an endogenous number of newborns, the reproductive value of Fisher shows up as part of the shadow price of the population. Depending on the objective function, the reproductive value may be negative. Moreover, we show results of the reproductive value for changing vital rates. To motivate and demonstrate the general framework, we provide examples in health economics, epidemiology, and population biology.

Higher Education and Health Investments: Does More Schooling Affect Preventive Health Care Use?

While it is well-known that individuals with higher levels of education consume more preventive medical care, there are several potential explanations for this stylized fact. These explanations include causal and non-causal mechanisms, and distinguishing among explanations is relevant for accessing the importance of educational spillovers on lifetime health outcomes as well as uncovering the determinants of preventive care. In this paper, we use regression analysis, sibling fixed effects, and matching estimators to examine the impact of education on preventive care. In particular, we use a cohort of 10,000 Wisconsin high school graduates that has been followed for nearly 50 years and find evidence that attending college is associated with an increase in the likelihood of using several types of preventive care by approximately five to fifteen percent for college attendees in the early 1960s. We also find that greater education may influence preventive care partly through occupational channels and access to care. These findings suggest that increases in education have the potential to spillover on long-term health choices.

The Cost of Uncertain Life Span

A considerable amount of uncertainty surrounds the length of human life. The standard deviation in adult life span is about 15 years in the U.S., and theory and evidence suggest it is costly. I calibrate a utility-theoretic model of preferences over length of life and show that one fewer year in standard deviation is worth about half a mean life year. Differences in the standard deviation exacerbate cross-sectional differences in life expectancy between the U.S. and other industrialized countries, between rich and poor countries, and among poor countries. Accounting for the cost of life-span variance also appears to amplify recently discovered patterns of convergence in world average human well-being. This is partly for methodological reasons and partly because unconditional variance in human length of life, primarily the component due to infant mortality, has exhibited even more convergence than life expectancy.

Health status and health dynamics in an empirical model of expected longevity

Expected longevity is an important factor influencing older individuals' decisions such as consumption, savings, purchase of life insurance and annuities, claiming of Social Security benefits, and labor supply. It has also been shown to be a good predictor of actual longevity, which in turn is highly correlated with health status. A relatively new literature on health investments under uncertainty, which builds upon the seminal work by Grossman [Grossman, M., 1972. On the concept of health capital and demand for health. Journal of Political Economy 80, 223-255] has directly linked longevity with characteristics, behaviors, and decisions by utility maximizing agents. Our empirical model can be understood within that theoretical framework as estimating a production function of longevity. Using longitudinal data from the Health and Retirement Study, we directly incorporate health dynamics in explaining the variation in expected longevities, and compare two alternative measures of health dynamics: the self-reported health change, and the computed health change based on self-reports of health status. In 38% of the reports in our sample, computed health changes are inconsistent with the direct report on health changes over time. And another 15% of the sample can suffer from information losses if computed changes are used to assess changes in actual health. These potentially serious problems raise doubts regarding the use and interpretation of the computed health changes and even the lagged measures of self-reported health as controls for health dynamics in a variety of empirical settings. Our empirical results, controlling for both subjective and objective measures of health status and unobserved heterogeneity in reporting, suggest that self-reported health changes are a preferred measure of health dynamics.

Economics and the evaluation of health care programmes: generalisability of methods and implications for generalisability of results

Increasing attention is being given to identifying standardised methods of analysis for the economic evaluation of health care programmes and generating generalisable findings from these methods. In this paper, we show how these approaches fail to reflect the social science foundations of the economics discipline and the economic theory of individual behaviour. Using simple examples, we show that the technical efficiency of a particular programme differs between communities, even though the underlying technology is the same for the communities. Similarly, the subjective considerations represented by the utility function are not generally transferable between settings or between individuals within settings. As a result, the efficiency of an intervention will be influenced by the context in which the intervention is experienced, even in the presence of identical production and utility functions. The lack of generalisability includes the validity of the methods used to analyse the subjective component of the evaluation exercise. The adoption of standardised methods of measurement and analysis, together with the use of findings from the application of these methods in other settings, might ease the administrative burden presented in resource allocation exercises. However, these approaches do not accommodate the intellectual substance of the wide range of problems and circumstances that underlie these exercises.