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Subsidizing Health-Conscious Behavior Now or Later

  • Danilowicz, Kamila
  • Schwager, Robert
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    We examine subsidies for health care when consumers have present-biased preferences, which lead them to underestimate the effect of today s consumption on future health. We compare immediate subsidies paid for health-conscious consumption and future subsidies rewarding a good health outcome. We show that, while both policies can implement the first best choice, doing so by future subsidies results in higher costs for the government. This arises since the individual anticipates that, from today s perspective, she will make biased use of future subsidies. Hence, in order to create the same incentive effect, a future subsidy must be higher in present value terms.

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    File URL: http://econstor.eu/bitstream/10419/80008/1/VfS_2013_pid_873.pdf
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    Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 80008.

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    Date of creation: 2013
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    Handle: RePEc:zbw:vfsc13:80008
    Contact details of provider: Web page: http://www.socialpolitik.org/
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    1. Helmuth Cremer & Philippe De Donder & Darío Maldonado & Pierre Pestieau, 2012. "Taxing Sin Goods and Subsidizing Health Care," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(1), pages 101-123, 03.
    2. Craig A. Gallet & John A. List, 2003. "Cigarette demand: a meta-analysis of elasticities," Health Economics, John Wiley & Sons, Ltd., vol. 12(10), pages 821-835.
    3. Ted O'Donoghue & Matthew Rabin, 1999. "Incentives For Procrastinators," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 769-816, August.
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