Risk and Uncertainty in Health Investment
AbstractExtending the Grossman  model of health capital into a stochastic one, we analyze how the presence of Knightian uncertainty about the efficacy of health care affects the optimal health investment behavior of individuals. Using Gilboa and Schmeidler's  model of maxmin expected utility (MMEU) with multiple priors, we show that an agent retains the initial level of health capital if the price of health care lies within a certain range. We also show that the no-investment range expands as the degree of Knightian uncertainty rises.
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Bibliographic InfoPaper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 696.
Date of creation: Mar 2010
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More information through EDIRC
Health Investment; Risk; Uncertainty;
Other versions of this item:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-20 (All new papers)
- NEP-HEA-2010-03-20 (Health Economics)
- NEP-UPT-2010-03-20 (Utility Models & Prospect Theory)
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