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Present-Biased Preferences and Publicly Provided Health Care

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  • Aronsson, Thomas

    (Umeå University)

  • Granlund, David

    (The Swedish Retail Institute (HUI))

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    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).

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    Bibliographic Info

    Paper provided by HUI Research in its series HUI Working Papers with number 41.

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    Length: 36 pages
    Date of creation: 01 Sep 2010
    Date of revision:
    Handle: RePEc:hhs:huiwps:0041

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    Related research

    Keywords: Public provision of private goods; hyperbolic discounting; intertemporal model; asymmetric information;

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    References

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    1. Aronsson, Thomas & Johansson-Stenman, Olof, 2009. "Positional Concerns In An Olg Model: Optimal Labor And Capital Income Taxation," Working Papers in Economics 355, University of Gothenburg, Department of Economics.
    2. John D Hey & Gianna Lotito, 2007. "Naïve, Resolute or Sophisticated? A Study of Dynamic Decision Making," Discussion Papers 07/03, Department of Economics, University of York.
    3. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
    4. Blomquist, S. & Christiansen, V., 1995. "Topping Up of Opting Out? The Optimal Design of Public Provision Schemes," Papers 1995-13, Uppsala - Working Paper Series.
    5. Boadway, Robin & Marchand, Maurice, 1995. "The Use of Public Expenditures for Redistributive Purposes," Oxford Economic Papers, Oxford University Press, vol. 47(1), pages 45-59, January.
    6. Alexander L. Brown & Zhikang Eric Chua & Colin F. Camerer, 2009. "Learning and Visceral Temptation in Dynamic Saving Experiments-super-," The Quarterly Journal of Economics, MIT Press, vol. 124(1), pages 197-231, February.
    7. Ted O'Donoghue & Matthew Rabin, 2003. "Studying Optimal Paternalism, Illustrated by a Model of Sin Taxes," American Economic Review, American Economic Association, vol. 93(2), pages 186-191, May.
    8. Ted O'Donoghue and Matthew Rabin ., 1997. "Doing It Now or Later," Economics Working Papers 97-253, University of California at Berkeley.
    9. Pirttila, Jukka & Tuomala, Matti, 2001. "On optimal non-linear taxation and public good provision in an overlapping generations economy," Journal of Public Economics, Elsevier, vol. 79(3), pages 485-501, March.
    10. Joseph E. Stiglitz, 1982. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
    11. Aronsson, Thomas & Sjögren, Tomas, 2009. "Quasi-Hyperbolic Discounting and Mixed Taxation," UmeÃ¥ Economic Studies 778, Umeå University, Department of Economics.
    12. Thomas Aronsson & Tomas Sjögren & Torbjörn Dalin, 2009. "Optimal taxation and redistribution in an OLG model with unemployment," International Tax and Public Finance, Springer, vol. 16(2), pages 198-218, April.
    13. Brett, Craig, 1998. "A note on nonlinear taxation in an overlapping generations model," MPRA Paper 8776, University Library of Munich, Germany.
    14. Ted O'Donoghue & Matthew Rabin, 2005. "Optimal Sin Taxes," Levine's Bibliography 784828000000000346, UCLA Department of Economics.
    15. Jukka Pirttilä & Sanna Tenhunen, 2008. "Pawns and queens revisited: public provision of private goods when individuals make mistakes," International Tax and Public Finance, Springer, vol. 15(5), pages 599-619, October.
    16. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
    17. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
    18. Aronsson, Thomas & Thunström, Linda, 2008. "A note on optimal paternalism and health capital subsidies," Economics Letters, Elsevier, vol. 101(3), pages 241-242, December.
    19. Craig Brett & John Weymark, 2008. "Optimal Nonlinear Taxation of Income and Savings without Commitment," Vanderbilt University Department of Economics Working Papers 0805, Vanderbilt University Department of Economics.
    20. Stern, Nicholas, 1982. "Optimum taxation with errors in administration," Journal of Public Economics, Elsevier, vol. 17(2), pages 181-211, March.
    21. Blomquist, Suren & Christiansen, Vidar, 1995. " Public Provision of Private Goods as a Redistributive Device in an Optimum Income Tax Model," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 547-67, December.
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