Lecture 4

Question 1

Health outcomes at micro level

Answer 1

1. It is a consumption good
2. it is a production input
3. it is an investment good

Question 2

Dupas

Answer 2

A person’s health stock in any year is a function of her health stock at the beginning of the year, the health stocks (and depreciation) that she experiences and the health care she receives

Question 3

Health shocks

Answer 3

Determined by the exposure to health risks, choices regarding health input use and health behaviours
When hit by a health shock, the
- types, qualities and prices of available health cares ervices
- houshold health care financing options (budget constraint)
help determine choices regarding the type, quantity and quality of health care treatment received

Question 4

Dupas barriers for adoption of preventive behaviou

Answer 4

1. information
2. Learning
3. cash, credit, constraints
4. behavioural biases

Question 5

Lack of information on

Answer 5

> health risks

> prevention techniques

Question 6

Health risks

Answer 6

> Determined by serverity of the shock

> more aware on preventive techniques

Question 7

provision of information depends on

Answer 7

• source
• type
• target group

Question 8

Externality

Answer 8

any positive or negative effect hat a market transaction imposes on a third party
positive externality: motivational benefits for living among active people (the social gain is greater than the private gain)
negative externality: second-hand smoke

Question 9

private welfare

Answer 9

the utility level isolated to one individual within a society

Question 10

social welfare

Answer 10

the summed utility levels of all individuals within a society

Question 11

pigourvian subsidy or tax

Answer 11

a subsidy or tax designed to “internalize” an externality by altering private costs and benefits
> subsidies encourage more consumption of goods with positive externalities
> taxes reduce consumption of goods with negative extrnalities

Question 12

The coase theorem

Answer 12

resources will be used efficiently to maximize social welfare, even in the face of externalities, given conditions:
> property rights are well defineed
> transaction costs or bargaining costs are sufficiently low

Question 13

Financial constraints

Answer 13

• Liquidity or cash constraints
• credit constraints

Expanding liquidity/ access to credit may not increase investments in preventive health (due to behavioral constrants)

Question 14

Saving constraints

Answer 14

> health poverty trap: high expenditures on curative health may hamper svings for peventive halth
financial services are often missing in poor households
risk of expropriation
self-control problems

Question 15

Behavioural biases

Answer 15

Ptential deviations from the standard naoclassical model of rational decision-making with individuals maximizing their utility subject to a budget constraint

• nonstandard preferences
• nonstandard beliefs about probabilitites
• nonstandard decision-making

Question 16

Beta-delta discounting model

Answer 16

Individuals derive utility from present joys and from anticipation of future happiness

Utility is a weighted sum of instantaneuos utlitlty levels from the present period and all future periods

• utility from any future period receives extra devaluation
• utility in the present is valued especially highly, moe highly than it would be bases on the discount rate alone (present bias)
• the closer beta is to zero, the more future utitlity is discounted and the greater the bias is towards the present

Question 17

Discounting function

Answer 17

Indicates how much an individual values utility in present and future periods

Question 18

time-consistend preferences

Answer 18

preferences shared across al selves, so that future selves will not alter a plan that a previous self found optimal
Only if Beta = 1
It is unrealistic as plans could always change, preferences of future self are not the same as present day self. However; if past and present selves agree on the best course in a given circumstance, an individual’s preferences are time-consistent

Question 19

hyperbolically discounted preferences

Answer 19

Steep discounting of utility in the near future and flatter discounting of utility in the far future
Time inconsistent
> future selves will sometimes alter a plan that a previous self found optimal
> myopic preferences