Uncertainty and the demand for medical care
This paper analyses the effects of uncertainty on the demand for medical care. It employs a simplified version of Grossman’s human capital model of the demand for health to examine the consequences for the demand for medical care of increased uncertainty surrounding the effectiveness of medical treatment and the incidence of ill-health. We show that under plausible assumptions the demand for medical care will increase following increased uncertainty over the incidence of ill-health. We also show that though the effects of increased uncertainty over the effectiveness of medical care are indeterminate a prion, it is possible to identify situations in which one can make unambiguous predictions about how the demand for medical care responds to increased uncertainty over the effectiveness of medical care. In addition to presenting the comparative static results, we also discuss their policy implications.
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