Present-Biased Preferences and Publicly Provided Health Care

Thomas Aronsson and David Granlund ()
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Thomas Aronsson: Umeå University, Postal: Department of Economics, SE-901 87 Umeå, Sweden
David Granlund: The Swedish Retail Institute (HUI), Postal: SE-103 29 Stockholm, Sweden, and Department of Economics, Umeå University, SE-901 87 Umeå, Sweden

No 41, HUI Working Papers from HUI Research

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 (search for similar items in EconPapers)
JEL-codes: D03 D61 H42 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2010-09-01
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