Coinsurance rate elasticity of demand for medical care in a stochastic optimization model

Abstract

This paper proposes a model of demand for medical care under uncertainty and incorporates an insurance contract with a constant coinsurance rate. Health capital and wealth are modelled as Wiener processes. A theoretical relationship between the coinsurance rate elasticity of the demand for medical care and the coinsurance elasticities of health and wealth is established. Direction and magnitude of change in demand for medical care are shown to depend on the degree of the relative risk aversion with respect to health. Coinsurance rate elasticities of consumption and leisure have also been obtained. Show more