Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/185703
Authors: 
Schwardmann, Peter
Year of Publication: 
2017
Series/Report no.: 
Discussion Paper No. 33
Abstract: 
People 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 and 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 behaviour and incentive to innovate. I also show that tax-funded prevention subsidies are welfare enhancing.
Subjects: 
health risk denial
optimal expectations
motivated beliefs
disease prevention
self-protection
JEL: 
D03
I15
I11
I18
Document Type: 
Working Paper

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