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Competitive Markets with Endogenous Health Risks


  • Bennardo, Alberto
  • Piccolo, Salvatore


We study a general equilibrium model where agents' preferences, productivity and labour endowments depend on their health status, and occupational choices affect individual health distributions. Efficiency typically requires agents of the same type to obtain different expected utilities if assigned to different occupations. Under mild assumptions, workers with riskier jobs must get higher expected utilities if health aspects production capabilities. The same holds if health aspects preferences and health enhancing consumption activities are sufficiently effective, so that income and health are substitutes. The converse obtains when health aspects preferences, but health enhancing consumption activities are not very effective, and hence income and health are complements. Competitive equilibria are first- best if lottery contracts are enforceable, but typically not if only assets with deterministic payoffs are traded. Compensating wage differentials which equalize the utilities of workers in different jobs are incompatible with ex-ante efficiency. Finally, absent asymmetric information, there exist deterministic cross-jobs transfers leading to ex-ante efficiency.

Suggested Citation

  • Bennardo, Alberto & Piccolo, Salvatore, 2005. "Competitive Markets with Endogenous Health Risks," CEPR Discussion Papers 5385, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5385

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    References listed on IDEAS

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    Cited by:

    1. Gianluigi Coppola, 2012. "Health, Lifestyle and Growth," AIEL Series in Labour Economics,in: Giuliana Parodi & Dario Sciulli (ed.), Social Exclusion. Short and Long Term Causes and Consequences, edition 1, chapter 1, pages 17-34 AIEL - Associazione Italiana Economisti del Lavoro.

    More about this item


    compensating wage differentials; competitive markets; individual health risks; Pareto efficiency;

    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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