HIV/AIDS Contamination Risk, Savings and the Welfare Effects of Diagnostic Testing
University of Amsterdam; Tilburg University - Center for Economic Research (CentER)
A. C. Meijdam
Tilburg University - Center for Economic Research (CentER); Tilburg University - Department of Economics
Harrie A. A. Verbon
Tilburg University - CentER; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
CentER Discussion Paper Series No. 2007-50
This paper models the effect of a HIV/AIDS epidemic on saving behavior and studies the welfare effects of testing for HIV. The model specifies a utility function that includes both regular consumption, and medical expenditures. Medical expenditures generate more utility if individuals are HIV infected, but they are only able to purchase the optimal medical consumption after being tested HIV positive. The paper describes different effects on aggregate savings according to different stages of the epidemic. We show that the HIV epidemic decreases savings if especially young individuals are (perceived to be) affected by the virus, but may increase savings if individuals perceive a sizable probability of getting infected later in life. By the same token, the welfare effects of testing young individuals differs greatly from the welfare effects of testing older individuals, the reason being that the savings responses to testing differ according to whether old or young individuals are tested.
Number of Pages in PDF File: 22
Keywords: saving behavior, perceived risk, HIV/AIDS, HIV testing, mortality, life-cycle model
JEL Classification: D83, D91, I12, E21working papers series
Date posted: September 5, 2007
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