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Utility and Health

Utility and Health. Lecture 2 Asst. Prof. Dr. İlker Daştan HEALTH ECONOMICS. 1. How Health Economics?. How does health produce utility? (Next: What affects health (lifestyle and medical care choices) ?)

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Utility and Health

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  1. Utility and Health Lecture 2 Asst. Prof. Dr. İlker Daştan HEALTH ECONOMICS

  2. 1. How Health Economics? • How does health produce utility? (Next: What affects health (lifestyle and medical care choices) ?) • Services delivered in health care markets are not “goods,” they do not provide direct utility • They may even have “bad” side effects • Health as an economic good: stock (or capital) of health generates happiness/utility • Derived demand for medical care • Grossman, M., 1972, On the Concept of Health Capital and the Demand for Health, Journal of Political Economy 80 (2): 223–255

  3. Demand for Health • Health is like a durable good • Life starts with an inherent stock of health • Different for each individual • Utility = U(X, H) • H is stock of health, X is other goods • Health leads to utility • Utility from X or H increases in a decreasing manner • Utility from other goods increases with health • Utility from health increases with other goods • Indifference curves may be drawn identifying different combinations of health and other goods with same utility

  4. Production of Health • Individual himself produces health using medical care (health produces utility) • The demand for the final product (health) leads to derived demand for medical care to produce health • Production function: • H = g(m) • Where m is medical care – broadly defined • Generally: g’(m) > 0 and g’’(m) < 0 • Benefits of medical care decrease with usage • May even become negative

  5. 2. The Production of Health • H = g(m, D) • Where D is disease • Impact of medical care depends on disease: disease and medical care interact to determine health production • Disease I: Health at mid-level, medical care provides some help (e.g. allergies, asthma) • Disease II: Worst health but medical care restores health to a better level than DI (e.g. a broken leg) • Disease III: A small health shock but medical care can’t do much either (e.g. common cold)

  6. Characteristics of Medical Care • Marginal productivity of medical care falls, while average productivity can be high • Medical care is not a homogeneous activity • Thousands of medical procedures, diseases, and injuries • Current Procedural Terminology System • International Classification of Diseases • Medical care generally does not change ultimate outcome, but speeds the “cure” • Or slows death: AIDS, some forms of cancer, or Alzheimer’s disease • Outcomes of medical care is uncertain • Life style also matters

  7. 3. Health Through the Life Cycle • Aging: wearing/depreciation of the health stock • Life expectancy increased • Public Health improvements • Medical care improvements • Typical plot of health stock (Figure 2.4): • Decreasing trend with occasional troughs and recoveries, until Hmin • Aggregate annual death rate per 100,000 persons (29 between ages 1-4 and 13,000 over 85) • Technical change reduced these rates for most ages (for ages 15-24, it’s mostly not technical change but reduction in drunk driving and improvement in vehicle safety) • Heart attack (28.5%) and cancer (22.8%) comprise more than 50% of deaths in the US (2002 data)

  8. A Model of Consumption and Health • “You are what you eat” • “As you sow, so shall ye reap” • Smoking, alcohol consumption, use of drugs, diet composition (high cholesterol foods), nature of sexual activities, amount of exercise • H = g(XBAD, XGOOD, m) g’(XBAD)<0, g’(XGOOD)>0, g’(m)>0 U’(XBAD) > 0 • These choices dominate a person’s health far more than the medical care system

  9. A Model of Consumption and Health • Between ages 15-24 (causes that comprise more than 75% ) (1999 data): • Vehicle crashes • Other accidents • Homicide • Suicide • Black males aged 15-24: death rate from homicide alone exceeds all causes of white males (1997 data) • So medical care system is ineffective in such issues

  10. A Model of Consumption and Health • Ages 65 and over, major causes of death • Heart disease (smoking ) • Cancer • Stroke • Lung disease (tobacco) • In mid-ages, it’s a mix • Epidemiological data shows systematically increased risk with lifestyle choices • Smoking one or more packs causes 2.5 times the risk of a fatal heart attack, similar data for high blood pressure (salt, alcohol, stress), cholesterol (diet), no exercise • Tobacco, diet/activity patterns and alcohol account for 3/8 of all deaths in the US (1990) • Compare Nevada and Utah

  11. More on lifestyle Causes of obesity (economics predicts these) • Technology -> Increase in marginal productivity of workers, calories spent decline (2/3 of increase in BMI since 1960s, (Lakdawalla and Philipson, 2002) ) • Increased value of time increases the opportunity cost of exercise, encourages shift to fast food (with more women in workforce, time becomes more valuable, less home-cooking) • Budget for restaurant meals was 1/3 of food budget in 1970s, recently became ½ • Larger portions were introduced starting from 1970s, obesity increases closely track these • Technology -> Increase in agricultural productivity and mass production and marketing of food (1/3) • Density of restaurants per capita explain obesity the most (Chou et al. 2002) • Number of fast-food restaurants per capita doubled between 1970 and 1990, full service restaurants increased by 35%

  12. Obesity • Linked to transportation • Courtemache (2007) shows higher gasoline prices cause weight loss • $1/gallon increase reduces 16,000 fatalities per year and saves $17 bn in health care costs (400 mn/d gallons are consumed -- $145 bn spent annually) • Coggon et al. (2001) estimate that ¼ of all knee surgeries could be eliminated but for BMI under 25

  13. Tobacco –why smoke? • Stigler and Becker (1977) • de gustibus non est disputandum • Rational individuals choose to be addicted now and quit later in life • Lack of information • Decreases with education • From ~30% to ~8% (college) • <3% for physicians • Even health workers’ consumption decreases with education

  14. Alcohol • Patterns and intensity matter for constant consumption • Heavy drinking: • Liver cirrhosis • Some cancers • Heart disease • D&D • Type of alcohol matters • Study on Danish adults (Gronbaek et al., 2000):

  15. Types of alcohol • Heavy drinking (more than 21 drink per week) of beer and distilled spirits increases mortality from all causes and specifically • Cancers (double the risk) • Mixed results re: Coronary Heart Disease • Wine reduces all-cause deaths by about 20%, even for heavy drinkers, heart disease by 50% • Red wine is better than white wine due to procyanadinin red wine (also in chocolate, cranberry juice, pomegranates) • General alcohol use increases with education • People with higher education tend to consume healthier alcohol (Klatsky et al. 1990)

  16. Alcohol and lifetime income • Moderate consumption may increase lifetime income, heavy consumption decreases • Through labor force participation, not wage (Mullahy and Sindelar, 1993) • Income increases access to a healthier life as well as to restaurants! • Moreover, better health means higher productivity and income

  17. Education • Could it be that both education and healthier lifestyle choices could depend on something more fundamental: • Time preference differences • Economics stops here

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