Working Paper: CEPR ID: DP5385
Authors: Alberto Bennardo; Salvatore Piccolo
Abstract: We study a general equilibrium model where agents' preferences, productivity and labour endowments depend on their health status, and occupational choices affect individual health distributions. Efficiency typically requires agents of the same type to obtain different expected utilities if assigned to different occupations. Under mild assumptions, workers with riskier jobs must get higher expected utilities if health aspects production capabilities. The same holds if health aspects preferences and health enhancing consumption activities are sufficiently effective, so that income and health are substitutes. The converse obtains when health aspects preferences, but health enhancing consumption activities are not very effective, and hence income and health are complements. Competitive equilibria are first-best if lottery contracts are enforceable, but typically not if only assets with deterministic payoffs are traded. Compensating wage differentials which equalize the utilities of workers in different jobs are incompatible with ex-ante efficiency. Finally, absent asymmetricinformation, there exist deterministic cross-jobs transfers leading to ex-ante efficiency.
Keywords: Compensating wage differentials; Competitive markets; Individual health risks; Pareto efficiency
JEL Codes: D5; D61; D80; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Occupational choices (J29) | Health status (I14) |
| Health status (I14) | Productivity (O49) |
| Health status (I14) | Preferences (D11) |
| Health risks (I12) | Expected utility (D81) |
| Health risks (I12) | Utility differentials (L97) |
| Occupational choice (J29) | Health outcomes (I14) |
| Health outcomes (I14) | Utility differentials (L97) |
| Market structures (D49) | Utility outcomes (L97) |
| Occupational assignment (J62) | Utility outcomes (L97) |