The Economics of Risky Health Behaviors
Cornell University - College of Human Ecology, Department of Policy Analysis & Management (PAM); Cornell University - College of Arts & Sciences, Department of Economics; NBER; IZA
Christopher J. Ruhm
University of Virginia - Frank Batten School of Leadership and Public Policy; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)
IZA Discussion Paper No. 5728
Risky health behaviors such as smoking, drinking alcohol, drug use, unprotected sex, and poor diets and sedentary lifestyles (leading to obesity) are a major source of preventable deaths. This chapter overviews the theoretical frameworks for, and empirical evidence on, the economics of risky health behaviors. It describes traditional economic approaches emphasizing utility maximization that, under certain assumptions, result in Pareto-optimal outcomes and a limited role for policy interventions. It also details nontraditional models (e.g. involving hyperbolic time discounting or bounded rationality) that even without market imperfections can result in suboptimal outcomes for which government intervention has greater potential to increase social welfare. The chapter summarizes the literature on the consequences of risky health behaviors for economic outcomes such as medical care costs, educational attainment, employment, wages, and crime. It also reviews the research on policies and strategies with the potential to modify risky health behaviors, such as taxes or subsidies, cash incentives, restrictions on purchase and use, providing information and restricting advertising. The chapter concludes with suggestions for future research.
Number of Pages in PDF File: 163
Keywords: health behaviors, alcohol, tobacco, smoking, drugs, obesity, diet, food, physical activity, public health, public policy, taxation, subsidies, addiction, externalities, advertising, information, behavioral economics, neuroeconomics, human capital, education, prices, sex, income, time preference, peers, bounded rationality, medical costs, employment, wages, crime, hyperbolic discounting
JEL Classification: I1, I20, I180, D01, H2, D1, D6, D03, D87, D83, J1,working papers series
Date posted: May 31, 2011
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