Health and Wealth in a Dynamic General Equilibrium Theory

Wei-Bin Zhang

Abstract


This paper deals with dynamic interdependence between wealth and health in a dynamic general equilibrium theory. The economy is composed of any number of groups of people.  It consists of three economic sectors - capital good, consumer good, and health sectors. We describe the economic structure and production technologies on the basis of Walrasian general equilibrium theory and neoclassical growth theory. Zhang’s utility function is applied to describe behavior of households. In our approach wealth and income inequalities between households are caused by heterogeneity in households’ preferences and differences in characteristics of health and human accumulation. Markets are perfectly competitive. Wealth accumulation is through saving and change in health stock is through health caring and consuming goods and services. We first build the dynamic general equilibrium model and then we provide a computational procedure so that we can easily follow movement of the economic system with specified parameter values and proper initial conditions. We simulate the heterogeneous-household model with three types of households. We identify the existence of a locally stable equilibrium point for the given parameters. We plot the motion of the economy and carry out comparative dynamic analysis with regard to changes in some parameters.

Keywords


health, wealth accumulation, Walrasian general equilibrium theory; neoclassical growth theory; economic structure

References


Abel, A., Bernanke, B.S., and Croushore, D. (2007) Macroeconomics. New Jersey: Prentice Hall.

Arrow, K. J. (1974) General Economic Equilibrium: Purpose, Analytic Techniques, Collective Choice. American Economic Review 64, 253-72

Arrow K.J. and Debreu, G. (1954) Existence of an Equilibrium for a Competitive Economy. Econometrica 22, 265–90.

Arrow, K.J. and Hahn, F.H. (1971) General Competitive Analysis. San Francisco: Holden-Day, Inc.

Baltagi, B.H. and Moscone, F. (2010) Health Care Expenditure and Income in the OECD reconsidered: Evidence from Panel Data. Economic Modelling 27, 804-11.

Barro, R.J. and X. Sala-i-Martin (1995) Economic Growth. New York: McGraw-Hill, Inc.

Bloom, D.E. and Canning, D (2003) The Health and Poverty of Nations: From Theory to Practice. Journal of Human Development 4, 47-71.

Bloom, D.E., Canning, D. and Sevilla, J. (2004) The Effect of Health on Economic Growth: A Production Function Approach. World Development 32, 1-13.

Burmeister, E. and Dobell, A.R. (1970) Mathematical Theories of Economic Growth. London: Collier Macmillan Publishers.

Creamer, H.., Donder, D. P., Maldonado, D., and Pestieau, P. (2012) Taxing Sin Goods and Subsidinzing Health Care. Scandinavian Journal of Economics 114(1), 101-23.

Dana, R.A, Florenzano, M., and Levy, D. (1989) Production Prices and General Equilibrium Prices: A Long-run Property of a Leontief Economy. Journal of Mathematical Economics 18, 263–80.

Debreu, G. (1959) Theory of Value. New York: Wiley.

Diewert, W. (1977) Walras’ Theory of Capital Formation and the Existence of a Temporary Equilibrium. In: Schwödiauer, G. (Ed.) Equilibrium and

Disequilibrium in Economic Theory. Dordrecht: Reidel.

Eatwell, J. (1987) Walras’ Theory of Capital, In: Eatwell, J., Milgate, M., and Newmann, P. (Eds.) The New Palgrave Dictionary of Political Economy. London: MacMillan.

Fletcher, J. (2012) The Effects of First Occupation on Long Term Health Status: Evidence from the Wiscousin Longitudinal Study. Journal of Labor Research 33(1), 49-75.

Fletcher, J. and Frisvold, D. (2014) The Long Run Health Returns to College Quality. Review of Economics of the Household 12(2), 295-325.

Grossman, M. (1972) On the Concept of Health Capital and the Demand of Health. Journal of Political Economy 80, 223-55.

Johansson, P.O. and Löfgren, K.G. (1995) Wealth from Optimal Health. Journal of Health Economics 14, 65-79.

Kelly, M. (2017) Health Capital Accumulation, Health Insurance, and Aggregate Outcomes: A Neoclassical Approach. Journal of Macroeconomics 52(June), 1-22.

Klaus, P., Bloom, D.E., and Strulik, H. (2013) Declining Fertility and Economic Well-Bing: Do Education and Health Ride to the Rescue? Labour Economics 22(C), 7—79.

Impicciatore, G., Panaccione, L., and Ruscitti, F. (2012) Walras’ Theory of Capital Formation: An Intertemporal Equilibrium Reformation. Journal of Economic Theory 106, 99-118.

Jensen, B.S. and Larsen, M.E. (2005) General Equilibrium Dynamics of Multi-Sector Growth Models. Journal of Economics 10: 17-56.

Mas-Colell, A., Whinston, M.D. and Green, J.R. (1995) Microeconomic Theory. New York: Oxford University Press.

McKenzie, L.W. (1959) On the Existence of General Equilibrium for a Competitive Market. Econometrica 27, 54–71.

Miles, D. and Scott, A. (2005) Macroeconomics – Understanding the Wealth o Nations. Chichester: John Wiley & Sons, Ltd.

Mino, K. (1996) Analysis of a Two-Sector Model of Endogenous Growth with Capital Income Taxation. International Economic Review 37, 227-251.

Montesano, A. (2008) A Restatement of Walras’ Theory of Capitalization and Money. History of Economics Review 47, 86–109.

Morishima, M. (1964) Equilibrium, Stability and Growth. Oxford: Oxford University Press.

Morishima, M. (1977) Walras’ Economics. Cambridge: Cambridge University Press.

Nikaido, H. (1956) On the Classical Multilateral Exchange Problem. Metroeconomica 8, 135–45.

Nikaido, H. (1968) Convex Structures and Economic Theory. New York: Academic Press.

Parkin, D., McGuire, A. and Yle, B. (1987) Aggregate Health Care Expenditures and National Income: Is Health Care a Luxury Good? Journal of Health Economics 6, 109-27.

Pestieau, P. and Racionero, M. (2016) Harsh Occupations, Health Status and Social Security. Journal of Economics 117(3), 239-57.

Posnett, J. ad Hitiris, T. (1992) The Determinants and Effects of Health Expenditure in Developed Countries. Journal of Health Economics 11, 173-81.

Rivera, B. and Currais, L. (1999) Economic Growth and Health: Direct Impact or Reverse Causation? Applied Economics Letters 6, 761-64.

Schultz, P. (1999) Health and Schooling Investments in Africa. Journal of Economic Perspectives 13, 67-88.

Solow, R. (1956) A Contribution to the Theory of Growth. Quarterly Journal of Economics 70, 65-94.

Stiglitz, J.E. (1967) A Two Sector Two Class Model of Economic Growth. Review of Economic Studies 34, 227-38.

Strauss, J. and Thomas, D. (1998) Health, Nutrition, and Economic Development. Journal of Economic Literature 36, 766-817.

Tobing, E. (2011) Public Health Spending, Tax Reform, and Long-Run Growth. Economics Letters 112, 119-21.

Uzawa, H. (1961) On a Two-Sector Model of Economic Growth. Review of Economic Studies 29, 47-70.

Uzawa, H. (1963) On a Two-Sector Model of Economic Growth I. Review of Economic Studies 30, 105-18.

van Zon, A. and Muysken, J. (2001) Health and Endogenous Growth. Journal of Health Economics 20, 169-85.

Walras, L. (1874) Elements of Pure Economics, translated from the French by W. Jaffé, 1954. London: Allen and Unwin.

Weil, D.N. (2007) Accounting for the Effective of Health on Education Growth. The Quarterly Journal of Economics 122, 1265-306.

Yavuz, N.C., Yilanci, V., and Ozturk, Z.A. (2013) Is Health Care a Luxury or a Necessity or Both? Evidence from Turkey. European Journal of Health Economics 14(1), 5-10.

Zhang, W.B. (1993) Woman’s Labor Participation and Economic Growth - Creativity, Knowledge Utilization and Family Preference. Economics Letters 42, 105-10.

Zhang, W.B. (2005) Economic Growth Theory. London: Ashgate.

Zhang, W.B. (2012) Economic Growth with Heterogeneous Households, Gender Division of Labor, and Elastic Labor Supply. Journal of Income Distribution 21, 15-37.

Zhang, W.B. (2018) Dynamic Interactions Between Health, Human Capital and Wealth. Academicus International Scientific Journal 17(January), 122-45.

Zhao, K. (2017) Social Insurance, Private Health Insurance and Individual Welfare. Journal of Economic Dynamics and C0ntrol 78 (May), 102-17.


Full Text: PDF

Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 License.