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Prevention and cure efforts both substitute and complement
Author(s) -
Hennessy David A.
Publication year - 2008
Publication title -
health economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.55
H-Index - 109
eISSN - 1099-1050
pISSN - 1057-9230
DOI - 10.1002/hec.1270
Subject(s) - incentive , complement (music) , subsidy , probabilistic logic , value (mathematics) , adverse selection , economics , recidivism , public economics , actuarial science , risk analysis (engineering) , microeconomics , business , medicine , computer science , market economy , biochemistry , chemistry , phenotype , artificial intelligence , complementation , machine learning , psychiatry , gene
Suppose one could expend effort to prevent probabilistic transition to an adverse state, and also effort to expedite probabilistic transition to a beneficial state. Bearing in mind that the efforts occur in different states, should these efforts substitute or complement? Two appealing arguments are in conflict. If cure effort is costly, then the incentive to prevent should be high in order to avoid future cure effort costs, i.e. efforts are gross substitutes in demand. If prevention effort is costly, then the incentive to cure should be low since recidivism is likely, i.e. efforts complement. In a lifetime present value model, we show that both arguments have merit. We also show that the prevalence of the adverse state can rise with a subsidy on cure effort costs. Copyright © 2007 John Wiley & Sons, Ltd.