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Risk and Uncertainty in Health Investment

Author

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  • Takao Asano

    () (Faculty of Economics, Okayama University)

  • Akihisa Shibata

    () (Institute of Economic Research, Kyoto University)

Abstract

Extending the Grossman [12] 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 [11] 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.

Suggested Citation

  • Takao Asano & Akihisa Shibata, 2010. "Risk and Uncertainty in Health Investment," KIER Working Papers 696, Kyoto University, Institute of Economic Research.
  • Handle: RePEc:kyo:wpaper:696
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    References listed on IDEAS

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    1. Chang, Fwu-Ranq, 1996. "Uncertainty and investment in health," Journal of Health Economics, Elsevier, vol. 15(3), pages 369-376, June.
    2. Peter P. Wakker, 2000. "Uncertainty aversion: a discussion of critical issues in health economics," Health Economics, John Wiley & Sons, Ltd., vol. 9(3), pages 261-263.
    3. Nishimura, Kiyohiko G. & Ozaki, Hiroyuki, 2007. "Irreversible investment and Knightian uncertainty," Journal of Economic Theory, Elsevier, vol. 136(1), pages 668-694, September.
    4. Selden, Thomas M., 1993. "Uncertainty and health care spending by the poor: The health capital model revisited," Journal of Health Economics, Elsevier, vol. 12(1), pages 109-115, April.
    5. Faruk Gul & Wolfgang Pesendorfer, 2001. "Temptation and Self-Control," Econometrica, Econometric Society, vol. 69(6), pages 1403-1435, November.
    6. Picone, Gabriel & Uribe, Martin & Mark Wilson, R., 1998. "The effect of uncertainty on the demand for medical care, health capital and wealth," Journal of Health Economics, Elsevier, vol. 17(2), pages 171-185, April.
    7. Marcus Berliant & Hideo Konishi, 2005. "Salience: Agenda choices by competing candidates," Public Choice, Springer, vol. 125(1), pages 129-149, July.
    8. Grossman, Michael, 1972. "On the Concept of Health Capital and the Demand for Health," Journal of Political Economy, University of Chicago Press, vol. 80(2), pages 223-255, March-Apr.
    9. Dardanoni, Valentino & Wagstaff, Adam, 1987. "Uncertainty, inequalities in health and the demand for health," Journal of Health Economics, Elsevier, vol. 6(4), pages 283-290, December.
    10. Adam Oliver, 2000. "Uncertainty aversion: a reply to the paper by Andersson and Lyttkens," Health Economics, John Wiley & Sons, Ltd., vol. 9(3), pages 253-255.
    11. Dow, James & Werlang, Sergio Ribeiro da Costa, 1992. "Uncertainty Aversion, Risk Aversion, and the Optimal Choice of Portfolio," Econometrica, Econometric Society, vol. 60(1), pages 197-204, January.
    12. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-587, May.
    13. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 443-478.
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    Cited by:

    1. Bolin, Kristian & Lindgren, Björn, 2016. "Non-monotonic health behaviours – implications for individual health-related behaviour in a demand-for-health framework," Journal of Health Economics, Elsevier, vol. 50(C), pages 9-26.
    2. Vladimir A. Kozlov & Dina Y. Balalaeva, 2015. "Institutional Deficit and Health Outcomes in Post-Communist States," HSE Working papers WP BRP 25/PS/2015, National Research University Higher School of Economics.
    3. Bolin, Kristian & Lindgren, Björn, 2014. "Non-monotonic health behaviours - implications for individual health-related behaviour in a demand-for-health framework," Working Papers in Economics 588, University of Gothenburg, Department of Economics.
    4. Lo, Te-Fen & Hsieh, Chee-Ruey, 2013. "Dynamic profile of health investment and the evolution of elderly health," Social Science & Medicine, Elsevier, vol. 76(C), pages 134-142.
    5. Stephen Dimmock & Roy Kouwenberg & Olivia Mitchell & Kim Peijnenburg, 2015. "Estimating ambiguity preferences and perceptions in multiple prior models: Evidence from the field," Journal of Risk and Uncertainty, Springer, vol. 51(3), pages 219-244, December.

    More about this item

    Keywords

    Health Investment; Risk; Uncertainty;

    JEL classification:

    • 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

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