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Production Function of Health Which inputs matter? Evidence Demand for health and health care Angela Fertig Spring 2010 Angela Fertig Demand for health and health care

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Production Function of Health Which inputs matter? Evidence Production Function of Health I Our ﬁrst economic model I Defn: Relationship between inputs and outputs I Assumptions: I more input means more output (positive relationship) I diminishing marginal product (bowed shape) Angela Fertig Demand for health and health care
Production Function of Health Which inputs matter? Evidence Example of a production function I input: workers I output: widgets I prodn fcn gives how many widgets a worker can produce # Workers Output 0 0 1 4 2 10 3 13 4 15 5 16 Angela Fertig Demand for health and health care

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Production Function of Health Which inputs matter? Evidence Example continued production function gets ﬂatter and ﬂatter as output rises I ﬁrst worker hired uses best machine I last worker hired uses worst machine, overcrowding so lowers pty of other workers I result of ﬁxed inputs (factory size) – short-run only because of diminishing marginal product Angela Fertig Demand for health and health care
Production Function of Health Which inputs matter? Evidence Example continued marginal product = Δ output Δ labor Marginal # Workers Output Product 0 0 - 1 4 4 2 10 6 3 13 3 4 15 2 5 16 1 Angela Fertig Demand for health and health care

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Production Function of Health Which inputs matter? Evidence In health terms. .. I input : health care I output : health I prodn fcn of health gives how much health certain amounts of health care can produce I assumptions : I positive slope b/c health care improves health I gets ﬂatter as health care rises I if never get care, ﬁrst visit will do a lot I if get lots of care, one more visit won’t do much I health care can only keep us so healthy so there is an upper-bound; however, new medical break-through could change that in long-run I never bends downward – more health care cannot worsen health I Can you think of any exceptions? Angela Fertig Demand for health and health care
Production Function of Health Which inputs matter? Evidence Exceptions to the never bends downward assumption I iatrogenic – provider caused disease (hospital infection, risks of surgery, adverse reaction to drugs) I medicalization leads to less personal eﬀort to preserve health so more care leads to worse outcomes Angela Fertig Demand for health and health care

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Production Function of Health Which inputs matter? Evidence
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slides2 - Production Function of Health Which inputs matter...

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