Optimal Health Investment and Preferences Structure
This paper develops a general equilibrium framework to study the role of preference structure in connecting consumption, health investment, stock of health and capital, and their effects on the wage rate and on productivity. The paper shows that elasticities of health production, health investment and health cost determine jointly how health influences the wage rate. The steady state and the equilibrium dynamics of the model is investigated. In the case of additive preferences, the existence of equilibrium and the stability of the dynamic system require that the ratio of the elasticities of the cost of health and health investment is greater than the elasticity of the production function of health. Health stock can either have positive or negative effects on wages via a mechanism of reservation wages. When preferences are multiplicative, the condition of existence of equilibrium and the stability of the dynamic system reverses, and the effect of health stock on wages is always positive. Longevity is a decreasing convex concave function of the elasticity of inter temporal substitution of health. The relative behaviour of opportunity costs of health under preference structure is compared.