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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Mendola, Mariapia / Requate, Till / Schirle, Tammy / de Vries, Frans / Zulehner, Christine

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Uncertainty, the Demand for Health Care, and Precautionary Saving

Diego Nocetti
  • 1Clarkson University,
/ William T Smith
  • 2University of Memphis,
Published Online: 2010-08-23 | DOI: https://doi.org/10.2202/1935-1682.2626

Abstract

We analyze the demand for medical care and precautionary saving in a framework with uncertainty surrounding the incidence of illness and the effectiveness of medical treatments and a representation of preferences that disentangles ordinal preferences, risk preferences, and intertemporal smoothing preferences. We consider a “pure consumption” model with exogenous health capital and a model where young consumers invest in preventive care to increase their future health stock. In both cases, we establish conditions for the different sources for uncertainty to induce precautionary saving and we evaluate how uncertainty affects the demand of curative and preventive care. We also show that given the self-insurance function of preventive care, consumers' welfare may increase with the degree of uncertainty surrounding health care effectiveness.

Keywords: health uncertainty; demand for health care; preventive care; precautionary saving; risk aversion; intertemporal substitution


Published Online: 2010-08-23


Citation Information: The B.E. Journal of Economic Analysis & Policy. Volume 10, Issue 1, ISSN (Online) 1935-1682, DOI: https://doi.org/10.2202/1935-1682.2626, August 2010

Citing Articles

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[1]
Patryk Babiarz and Cliff A. Robb
Journal of Family and Economic Issues, 2014, Volume 35, Number 1, Page 40

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