Subsidizing Health-Conscious Behavior Now or Later

Kamila Danilowicz-Gösele and Robert Schwager

No 5734, CESifo Working Paper Series from CESifo

Abstract: In a model where consumers have quasi-hyperbolic preferences, we compare immediate subsidies paid for health-conscious consumption and future subsidies rewarding good health outcome. We characterize the subsidy rates which implement the unbiased choice. These rates differ because of two countervailing effects: (1) the individual applies quasi-hyperbolic discounting to future subsidy receipts, and (2) she can use the future subsidy to partially correct her own future behavior. We further show that future subsidies result in higher costs for a government which discounts exponentially. However, this result does not necessarily hold if the government itself is formed by time-inconsistent individuals.

Keywords: present-bias; quasi-hyperbolic discounting; paternalism; health (search for similar items in EconPapers)
JEL-codes: D91 H31 I18 (search for similar items in EconPapers)
Date: 2016
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