Health Care Investment: The Case of Multiple Sources of Risk

This paper analyses the effect of a bivariate risk on the optimal expenses in health care and gives conditions under which any change in the bivariate risk with respect to the (s(1), s(2))-increasing concave order decreases the expenses in health care. Increasing risk increases the demand for health care for risk-averse and prudent individuals in the multivariate sense. Positive (negative) dependence increases (decreases) expenses in health care. Increasing the correlation produces the same results. Furthermore, the uncertainty surrounding the effectiveness of medical treatments amplifies the effect of any change in wealth and health risks. We also present some policy implications.