My dissertation investigates how individuals make tradeoffs between consumption
and health risks, and the implications of their choices for the efficiency and equity of
public policies. I study how these decisions can be used to infer their willingness to
pay to reduce health risks, as well as the implications for dynamic complementarities
between the quantity and the quality of life, and how decisions on health behavior
affect educational attainment and workplace performance. Chapter 1 provides a brief
preview of how I formalize these ideas, test them using micro data, and consider their
policy implications in three interconnected essays.
In Chapter 2 I provide the first revealed preference evidence on the willingness
to pay to reduce mortality risks by US senior citizens. I derive this evidence from
the rates at which they consume medical services and the effects of their choices on
survival probabilities. Instrumental variable estimates provide robust evidence that
their Value of a Statistical Life (VSL) is well below $1 million and declines with age.
Conditional on age, the VSL increases in health, income, education and is higher for
women and for people who never smoked.
Chapter 3 develops a unified framework for valuing changes in health and longevity
that explicitly allows for the complementarities between quantity and quality of life.
I develop a dynamic life-cycle model of health investment, stochastic health and mortality, and use the model to characterize the VSL and the value of disease prevention
for seniors. My results reinforce the qualitative variation in VSL with respect to age,
health and income described in Chapter 2. I also document evidence of dynamic
complementarity that implies there is increasing returns to health improvements. To
demonstrate the policy implications of this complementarity, I use my calibrated
model to calculate the benefits of mortality reductions in the 2000’s that the US
Environmental Protection Agency attributed to the Clean Air Act. I find that these
mortality reductions generated benefits, in part, by increasing the value of further
health risk reductions due to increased life expectancy. The value of this improvement was equivalent to 6% of the total benefit of the Clean Air Act in 2010.
In Chapter 4 I investigate the causal effect of depression on illicit drug use among
young adults. Using the 9/11 terrorist attack as an instrument for depression, I show
that depression triggers illicit drug use among young adults (age 18-28) with heterogeneous impacts on different drugs. This finding suggests that treating depression
can help to reduce illicit drug use. Dynamic complementarity in health improvements
therefore, imply that there are likely to be positive externalities from the Affordable
Care Act and other policies that increase insurance coverage for mental health.