The Economics of Risky Health Behaviors

162 Pages Posted: 31 May 2011

See all articles by John Cawley

John Cawley

Cornell University - College of Human Ecology, Department of Policy Analysis & Management (PAM); Cornell University - College of Arts & Sciences, Department of Economics; The University of Sydney - School of Economics; National University of Ireland, Galway (NUIG) - J.E. Cairnes School of Business & Economics; NBER; IZA

Christopher J. Ruhm

University of Virginia - Frank Batten School of Leadership and Public Policy; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 2011

Abstract

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.

Suggested Citation

Cawley, John and Ruhm, Christopher J., The Economics of Risky Health Behaviors (May 2011). NBER Working Paper No. w17081. Available at SSRN: https://ssrn.com/abstract=1854183

John Cawley (Contact Author)

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Christopher J. Ruhm

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