Subsidizing Health-Conscious Behavior Now or Later

Kamila Danilowicz and Robert Schwager

VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order from Verein für Socialpolitik / German Economic Association

Abstract: We examine subsidies for health care when consumers have present-biased preferences, which lead them to underestimate the effect of today s consumption on future health. We compare immediate subsidies paid for health-conscious consumption and future subsidies rewarding a good health outcome. We show that, while both policies can implement the first best choice, doing so by future subsidies results in higher costs for the government. This arises since the individual anticipates that, from today s perspective, she will make biased use of future subsidies. Hence, in order to create the same incentive effect, a future subsidy must be higher in present value terms.

JEL-codes: D91 H31 I18 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-hea
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc13:80008

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