A Model of the Interaction of Health and Healthcare for the Wellbeing of Heterogeneous Individuals

A model is proposed here to investigate how the relationships between health, production, and wellbeing contribute to the achievement (or otherwise) of potential government objectives. This model uses a basic general equilibrium framework with heterogeneous individuals and two goods (healthcare and other). Public health and publically and privately provided healthcare affect health level, which in turn affects productivity. Several different potential objectives of the government agent are investigated, which determine the distribution of public healthcare. The model is solved numerically to understand the effects of the choices of government objectives including the level of inequality aversion and varying tax rates. For governments with high inequality aversion that maximise social welfare from utility, a non-zero tax rate may be optimal, even with high levels of public health.