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A dynamic efficiency rationale for public investment in the health of the young

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  • Andersen, Torben M.
  • Bhattacharya, Joydeep

Abstract

In this paper, we assume away standard distributional and static-efficiency arguments for public health, and instead, seek a dynamic efficiency rationale. We study a lifecycle model wherein young agents make health investments to reduce mortality risk. We identify a welfare rationale for public health under dynamic efficiency and exogenous mortality even when private and public investments are perfect substitutes. If health investment reduces mortality risk but individuals do not internalize its effect on the life-annuity interest rate, the Philipson-Becker effect emerges; when the young are net borrowers, it works together with dynamic efficiency to support a role for public health.

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  • Andersen, Torben M. & Bhattacharya, Joydeep, 2012. "A dynamic efficiency rationale for public investment in the health of the young," ISU General Staff Papers 201209240700001083, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:201209240700001083
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    Cited by:

    1. Torben Andersen & Mikkel Hermansen, 2014. "Durable consumption, saving and retirement," Journal of Population Economics, Springer;European Society for Population Economics, vol. 27(3), pages 825-840, July.
    2. Gylfi Zoega & Marias H. Gestsson, 2018. "Longevity and Companionship in an Overlapping-Generations Model," Birkbeck Working Papers in Economics and Finance 1811, Birkbeck, Department of Economics, Mathematics & Statistics.

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    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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