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Subsidizing Health-Conscious Behavior Now or Later

Author

Listed:
  • Kamila Danilowicz-Gösele
  • Robert Schwager

Abstract

In a model where consumers have quasi-hyperbolic preferences, we compare immediate subsidies paid for health-conscious consumption and future subsidies rewarding good health outcome. We characterize the subsidy rates which implement the unbiased choice. These rates differ because of two countervailing effects: (1) the individual applies quasi-hyperbolic discounting to future subsidy receipts, and (2) she can use the future subsidy to partially correct her own future behavior. We further show that future subsidies result in higher costs for a government which discounts exponentially. However, this result does not necessarily hold if the government itself is formed by time-inconsistent individuals.

Suggested Citation

  • Kamila Danilowicz-Gösele & Robert Schwager, 2016. "Subsidizing Health-Conscious Behavior Now or Later," CESifo Working Paper Series 5734, CESifo.
    • Handle: RePEc:ces:ceswps:_5734
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp5734.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    present-bias; quasi-hyperbolic discounting; paternalism; health;
    All these keywords.

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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