Template-type: ReDIF-Paper 1.0
Author-Name: Azomahou, Theophile 
Author-Email: azomahou@merit.unu.edu
Author-Workplace-Name: UNU-MERIT
Author-Name: Diene, Bity
Author-Workplace-Name: CREA, University of Luxembourg
Author-Name: Soete, Luc
Author-Email: soete@merit.unu.edu
Author-Workplace-Name: UNU-MERIT, Maastricht University
Title: The role of consumption and the financing of health investment under epidemic 
	 shocks 
Abstract: We study the behavior of consumption and health investment resulting 
	 from shocks undermining health capital accumulation. We examine the 
	 effects on subsequent life cycle of long-lived shocks undermining health 
	 with either an acceleration of health capital deterioration, or a 
	 decrease in health investment efficiency. We also address the issue of 
	 the financing of health investment. We provide new evidence based on 
	 nonparametric estimations which show complex non-linear interplay 
	 between life expectancy and health expenditure. We then develop a 
	 benchmark model where consumption and health capital enter additively in 
	 the utility function, featuring independence between the returns from 
	 ordinary consumption and health. Then, we depart from this setup by 
	 assuming non-additive preferences meaning that ordinary consumption also 
	 is crucial for health. We show that a shock undermining health which 
	 increases health expenditures and weakens the income base, not only 
	 affects savings but also compromises the consumption capacity, the human 
	 and physical capital of the economy, and undercuts the process of 
	 economic development. We also show that the magnitude of the effects 
	 strongly depends on the assumed preferences.
Classification-JEL: E21, I12, O10
Keywords: consumption, health investments, savings, non-parametric estimation
Series: UNU-MERIT Working Papers
Creation-Date: 2009
Number: 2009-006
File-URL: https://unu-merit.nl/publications/wppdf/2009/wp2009-006.pdf
File-Format: application/pdf
File-Size: 275 Kb
Handle: RePEc:unm:unumer:2009006