Optimal health investment and preferences structure
Abstract
This paper develops a general equilibrium framework to study the role of preference structure (additive, multiplicative and a convex combination of the two) in connecting consumption, health investment, stock of health and capital, and their effects on the wage rate and on productivity. We show that the elasticities of health production, health investment and health cost determine jointly how health influences the wage rate. We examine the steady state and the equilibrium dynamics of the model. In the case of additive preferences, the existence of equilibrium and the stability of the dynamic system require that the ratio of the elasticities of the cost of health and health investment is greater than the elasticity of the production function of health.
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