Munich Personal RePEc Archive

Reference dependent utility from health and the demand for medical care

Harris, Matthew and Kohn, Jennifer (2015): Reference dependent utility from health and the demand for medical care.

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Abstract

We examine the effect of reference health on the demand for medical care. We propose and empirically implement a dynamic model of demand for medical care that includes reference health, an average of previous health states. We find that gain or loss from reference health significantly affects the demand for medical care. The effect is stronger for losses than gains. The effect is strongest in the upper tail of medical care consumers. We compare the predictions of our dynamic model with one that omits reference health. Including reference health improves our ability to match individuals in the top 5 percent by 65 percent.

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