Project Management

Evaluating Health Care Externality Costs Generated By Risky Consumption Goods

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Executive Summary

The authors present an OverLapping-Generations (OLG) macroeconomic model that applies a behavioral interpretation of preferences for goods that generate health risks. In this paper, proneness to poor health is viewed as a cognitive miscalculation by economic agents between their expected health state over various consumption bundles and the actual health care they require for their health outcome. To model this, the paper borrows insight from prospect theory and applies the reference-dependent preference framework to the specification of out utility model.

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