HUI Working Papers, HUI Research
Thomas Aronsson and David Granlund
Present-Biased Preferences and Publicly Provided Health Care
Abstract: In this paper, we analyze the welfare effects of publicly
provided health care in an economy where the consumers have
"present-biased" preferences due to quasi-hyperbolic discounting. The
analysis is based on a two-type model with asymmetric information between
the government and the private sector, and each consumer lives for three
periods. We present formal conditions under which public provision to the
young and middle-aged generation, respectively, leads to higher welfare.
Our results show that quasi-hyperbolic discounting provides a strong
incentive for public provision to the young generation; especially if the
consumers are naive (instead of sophisticated).
Keywords: Public provision of private goods; hyperbolic discounting; intertemporal model; asymmetric information; (follow links to similar papers)
JEL-Codes: D03; D61; H42; (follow links to similar papers)
36 pages, September 1, 2010
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