Public Health Care, Private Health Investments and Their Interaction: A Normative Approach

Abstract:     
This paper analyzes the impacts of public provided health care on private decisions on health investments and savings. The already observed and forecasted increase in total health expenditures motivates a better understanding of the key distinguishing characteristics of public health care. Our analysis is based on a two period OLG model extended with heterogeneous agents, private health investments in the first period of life and public health care is provided during second period of life. Our normative analysis shows that public health care imply socially too high private health investments, i.e. the private agents tends to freeride on the public health care system and may be taxed in a decentralized optimum.

Number of Pages in PDF File: 31

Keywords: Public health care, heterogeneity, life expectancy, optimal taxation

JEL Classification: I10, I18, H21

working papers series