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The impact of climate change on health expenditures

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  • Frankovic, Ivan

Abstract

We study the effect of climate-induced health risks within a continuous time OLG economy with a realistic demography and endogenous mortality. Climate change impacts the economy through two channels. First, a degrading environmental quality increases mortality, affecting the demand for health care. Second, production losses are caused through deteriorating climate conditions and lead to reductions in income. We explore how individuals respond to these climate change impacts with respect to their life-cycle decisions and assess the overall effect on aggregate health care demand. We put special focus on age-specific vulnerabilities of climateinduced health risks and explore the response to climate change across age-groups. We solve the model numerically and show that health care demand is subject to two opposing forces. While climate-induced mortality increases demand for medical care, reduced income tends to lower health spending, particularly among the elderly. Moreover, we find that age-specific vulnerabilities to climate change considerably shape the effect on aggregate health care demand. Our analysis, thus, highlights the important role of a full life-cycle perspective in the estimation of climate-induced health costs.

Suggested Citation

  • Frankovic, Ivan, 2017. "The impact of climate change on health expenditures," ECON WPS - Working Papers in Economic Theory and Policy 02/2017, TU Wien, Institute of Statistics and Mathematical Methods in Economics, Economics Research Unit.
    • Handle: RePEc:zbw:tuweco:022017
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    References listed on IDEAS

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    1. Muhammad Azam & Abdul Majid Awan, 2022. "Health is Wealth: A Dynamic SUR Approach of Examining a Link Between Climate Changes and Human Health Expenditures," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 163(2), pages 505-528, September.

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    More about this item

    Keywords

    climate change; climate-induced health risks; life-cycle model; health care; value of life;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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