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Public health care, private health investments and their interaction: a normative approach

Lars Lønstrup
University of Southern Denmark, Denmark

This paper analyzes the impacts of public provided health care on private decisions on health investments and savings. The already observed and forecasted increase in total health expenditures motivates a better understanding of the key distinguishing characteristics of public health care. The analysis is based on a two period OLG model extended with heterogeneous agents, private health investments in the …rst period of life and public health care is provided during second period of life. The normative approach reveals that public health care imply socially too high private health investments, i.e. the private agents tends to freeride on the public health care system and may be taxed in a decentralized optimum.

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