Motivated health risk denial and preventative health care investments

Publication date: Available online 19 February 2019Source: Journal of Health EconomicsAuthor(s): Peter SchwardmannAbstractPeople deny health risks, invest too little in disease prevention, and are highly sensitive to the price of preventative health care, especially in developing countries. Moreover, private sector R&D spending on developing-country diseases is almost non-existent. To explain these empirical observations, I propose a model of motivated belief formation, in which an agent's decision to engage in health risk denial balances the psychological benefits of reduced anxiety with the physical cost of underprevention. I use the model to study firms’ price-setting behavior and incentive to innovate. I also show that tax-funded prevention subsidies are welfare enhancing.
Source: Journal of Health Economics - Category: Health Management Source Type: research