Abstract
In this article, I attempt to explain why lifestyle may have a positive impact on economic growth. First, I consider the ways in which health affects a consumer’s utility, and I then define a Health Production Function for which health is the output and consumer good is the input. In this approach, the Lifestyle Return to Scale (LRS) parameter is defined. The first result is that an increase in a consumer’s personal income may have a positive or a negative effect on health. That is, health may be a normal or an inferior good, depending on the Lifestyle Return to Scale value. According to this result, I compute a health multiplier and then modify the Solow Growth Model in which health is labour-augmenting. The result is a model in which the Lifestyle Return to Scale positively affects per capita income and per capita income growth.
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Notes
- 1.
Financial Times Cash incentives seen as helping nation’s health, 11 April 2009.
- 2.
The ancient Romans said “In Medio stat Virtus”. In the model that hypothesis doesn’t matter for each single good.
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- 4.
This approach may be considered as a generalization of Wagstaff’s model (1986). See Appendix for details.
- 5.
Three issues should be highlighted here. First, in this simple consumer model, choices are made between two commodities. In reality, a commodity may be not consumed for three reasons, the first two of which were outlined previously: (1) the consumer does not like a commodity; (2) even if a commodity is liked, the health damage caused by the commodity may be greater than the commodity’s utility, preventing consumption of the commodity; and (3) the relative price of a commodity may be greater than income, preventing consumption of the commodity. In the first two cases, the commodity is not consumed as a result of free choice. In the second case, this choice may be difficult. In the third case, price and income limits restrict access to the commodity. In this article, we consider only the case in which individuals consume both commodities.
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Acknowledgements
I would like to thank seminar participants at the University of Salerno and the University of Pescara. I am grateful for many helpful comments, received during the course of those presentations. Thanks also to Adalgiso Amendola, Alberto Bennardo, Dimitrios Christelis, Floro Ernesto Caroleo, Marcello D’Amato, Sergio Destefanis, Fernanda Mazzotta, Niall O’Higghins, Carmen Pagliari and Giuliana Parodi for their very useful suggestions. The usual disclaimer applies.
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Appendix
Appendix
1.1 A Generalization of Wagstaff’s Model
Starting with Michael Grossman’s Model (1972) and Wagstaff (1986) developed a one-period model of demand for health. The four hypotheses of the model include the following: (1) an individual’s health is determined by the consumption of health inputs \( h\left( x \right) = x^{\rho } ; \) (2) preferences are non-lexicographic: individuals desire health but not above everything else; (3) individuals also consume other commodities that have a positive cost for consumers, so \( U = u\left( {h,z} \right) \) with \( \frac{dU}{dh},\frac{dU}{dz} > 0 \) and \( \frac{{d^{2} U\left( {h,z} \right)}}{dh},\frac{{d^{2} U\left( {h,z} \right)}}{dz} < 0; \) and (4) consumers have limited economic resources or budget constraints: \( p_{x} x + p_{z} z = Y, \) where \( p_{x} \) and \( p_{z} \) are the prices of commodities x and z, respectively, and Y is the income.
Assuming a Cobb Douglas Utility function and a Health production function \( h\left( x \right) = x^{\rho } , \) the Wagstaff Model can be formulated with the following formulas:
where \( 0 < \alpha < 1 \) and \( 0 < \delta < 1 \) are the utility elasticities with respect to x and z, respectively, and \( 0 < \rho < 1 \) is the elasticity of h with respect to x.
This is a special case of the Consumer’s model (Sect. 2) with \( \beta = 0. \) The commodity x is not in the Consumer’s utility function with \( \left( {\gamma = 0} \right); \) thus, z does not affect health.
The solutions can be obtained from two different methods. The first was proposed by Wagstaff:
In this case the Budget Constraint is not linear. The consumer chooses between health and z. The second possible solution is
The consumer chooses the quantities of x and z that maximize utility.
Both methods yield the same solutions:
The main differences include the following: (1) in the Wagstaff model, Health can only be a normal good because \( \frac{dh}{dy} > 0 \) (conversely, in the model proposed in this paper, Health may also be an inferior good), and (2) this result depends on the lifestyle of the consumer.
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Coppola, G. (2012). Health, Lifestyle and Growth. In: Parodi, G., Sciulli, D. (eds) Social Exclusion. AIEL Series in Labour Economics. Physica, Heidelberg. https://doi.org/10.1007/978-3-7908-2772-9_2
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