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Stochastic Model of Demand for Medical Care with Endogenous Labour Supply and Health Insurance

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  • Sidorenko, Alexandra

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    Abstract

    The paper proposes a model of demand for medical care under uncertainty. Both health capital and wealth are modelled as Wiener processes. The model uses a continuous time stochastic optimisation technique to derive optimal solutions for consumption, leisure and medical care. Insurance against uncertain medical expenditure is then incorporated into the optimisation problem under the assumption of constant relative risk aversion of the value function, and constant elasticity, relative risk aversion and relative prudence of the health investment function. The optimal solution is shown to depend on the curvature of the value function, the curvature of the health investment technology, and variances of the stochastic shocks. Dynamic simulations of the model are carried out.

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    File URL: https://crawford.anu.edu.au/acde/publications/publish/papers/wp2001/2001-08%20Sidorenko%20WP.pdf
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    Bibliographic Info

    Paper provided by The Australian National University, Arndt-Corden Department of Economics in its series Departmental Working Papers with number 2001-08.

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    Length: 32 pages
    Date of creation: 2001
    Date of revision:
    Handle: RePEc:pas:papers:2001-08

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    Related research

    Keywords: Demand for health; Uncertainty; Insurance; Stochastic optimisation;

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    19. Michael Grossman, 1999. "The Human Capital Model of the Demand for Health," NBER Working Papers 7078, National Bureau of Economic Research, Inc.
    20. Tabata, Ken & Ohkusa, Yasushi, 2000. "Correction note on "The demand for health with uncertainty and insurance"," Journal of Health Economics, Elsevier, vol. 19(5), pages 811-820, September.
    21. Ried, Walter, 1998. "Comparative dynamic analysis of the full Grossman model," Journal of Health Economics, Elsevier, vol. 17(4), pages 383-425, August.
    22. Blomqvist, Ake, 1997. "Optimal non-linear health insurance," Journal of Health Economics, Elsevier, vol. 16(3), pages 303-321, June.
    23. Manning, Willard G. & Marquis, M. Susan, 1996. "Health insurance: The tradeoff between risk pooling and moral hazard," Journal of Health Economics, Elsevier, vol. 15(5), pages 609-639, October.
    24. Marquis, M Susan & Holmer, Martin R, 1996. "Alternative Models of Choice under Uncertainty and Demand for Health Insurance," The Review of Economics and Statistics, MIT Press, vol. 78(3), pages 421-27, August.
    25. Phelps, Charles E & Newhouse, Joseph P, 1974. "Coinsurance, the Price of Time, and the Demand for Medical Services," The Review of Economics and Statistics, MIT Press, vol. 56(3), pages 334-42, August.
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