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Econ+157+Topic+C+Production+of+Health+and+Health+Care

Econ+157+Topic+C+Production+of+Health+and+Health+Care -...

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THE PRODUCTION OF HEALTH AND HEALTH CARE Topic C 3/3/2010 Econ 157 Mortimer 1
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Health Production Function Health inputs (e.g., medical care, lifestyle, environment) produces health Total output ≠ marginal output Marginal product is decreasing (ΔH/Δ HI) For policy analysis, we should focus on marginal product Put additional $ in where MP is high Health Health Inputs 3/3/2010 Econ 157 Mortimer 2
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Production of Health - Mortality Rates How do we measure health? Mortality rates, morbidity (illness) rates, and disability days Research shows that the marginal contribution of health care is significant but small: we are at the flat part of the production function Auster et al. (1969) estimated a health production function D=AM α E β C γ I δ D = mortality rate, M = medial care expenditures, E = education expenditures, I = income, C = cigarette consumption, A = constant The elasticity of mortality rates with respect to medical care to be around -0.1 The elasticity of education is about -0.2 The elasticity of cigarettes is about -0.1 The elasticity of income is positive in general, there are mixed results for the effect of income on health Some empirical studies show that socioeconomic status (e.g., education) and lifestyle (e.g., not smoking) may have a greater MP than health care 3/3/2010 Econ 157 Mortimer 3
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Production of Health - Mortality Rates Incremental benefits, however, still exceed incremental costs of health care Gains in life expectancy may be small in terms of years but can be large in terms of $ The production function can be shifted out with new technologies and medical research
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