Lecture 1 - population health economics

Question 1

3 stylized puzzles

Answer 1

1. health changes over time
2. health differences between countries
3. health differences within countries

Question 2

health production function assumptions

Answer 2

• A1: Health (h) is not given, but produced
• A2: Production is at the level of an individual i: hi  microeonomic perspective: individual i  look at their health (health level of person i)
• A3: Health is produced using a number of factors, we can influence some of these factors and medical care (m) is one of these:
  hi = f(m, other factors)  simplified: health of person i = function of medical care of this person i, reducing other factors (we group this together)
• A4: Utility maximization under constraints and utility is a function of health
   Produce health as efficiently as possible  because utility function also contains other things that we want to spend time and money on

Question 3

diminishing marginal returns to health care

Answer 3

Diminishing marginal returns to health care
* The first 2 units of medical care, so moving from the origin (point 0)  m2, generates an increase in health that is equal to the jump from h0  h2 (difference = amount of health that is generated by these two first units of medical care)
* We can also buy 2 more units of care = m4  increase health level from h2  h4 (however, this increase is much smaller than initial increase with first 2 units of care  in other words, there is diminishing marginal returns to health care)

Question 4

production function: improved medical treatment

Answer 4

• Marginal benefit ↑: larger impact (higher effectiveness) of one unit of M on H
• Possibly at all levels of M
   Production function shifts out (steeper than before)
   Higher level of H attainable at any level of M

Starting point remains the same, because improved medical treatment doesn’t change your health if you don’t use any

Question 5

production function: more medical treatment

Answer 5

• Health production function remains the same  but we essentially shift along the production function
• Shift towards higher level of M: M2  M4
   Higher level of H

 So, both more medical treatment and improved medical treatment might have contributed to a higher health level in the population

But, the health production function also illustrates the role of other factors (we should not ignore these)

Question 6

three motivations to be healthy (demand health)

Answer 6

1. It feels good  Health is a consumption good, u(c, h)  it enters the utility function directly
2. It affords time to earn income and enjoy other pleasures  Health is an input into production of healthy time  that you then can spend on working, consuming or producing even more health
3. It endures over time  Health is a form of (human) capital  we have a health capital stock that we carry over to the next period (depreciates little bit, but health in a certain period influences your health in the next period and all subsequent periods)  that again generates utility and timing in the future