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Present-Biased Preferences and Publicly Provided Health Care

Author

Listed:
  • Aronsson, Thomas

    (Department of Economics, Umeå University)

  • Granlund, David

    (Department of Economics, Umeå University)

Abstract

In this paper, we analyze the welfare effects of publicly provided health care in an economy where the consumers have "present-biased" preferences due to quasi-hyperbolic discounting. The analysis is based on a two-type model with asymmetric information between the government and the private sector, and each consumer lives for three periods. We present formal conditions under which public provision to the young and middle-aged generation, respectively, leads to higher welfare. Our results show that quasi-hyperbolic discounting provides a strong incentive for public provision to the young generation; especially if the consumers are naive (instead of sophisticated).

Suggested Citation

  • Aronsson, Thomas & Granlund, David, 2010. "Present-Biased Preferences and Publicly Provided Health Care," Umeå Economic Studies 813, Umeå University, Department of Economics.
    • Handle: RePEc:hhs:umnees:0813
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    Keywords

    Public provision of private goods; hyperbolic discounting; intertemporal model; asymmetric information;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods

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