This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: Economic Aspects of Health Volume Author/Editor: Victor R. Fuchs. editor Volume Publisher University of Chicago Press Volume ISBN: 0-226-26785-7 VolumeUrl:http://www.nberorg/books/fuch82-1 Publication Date: 1982 Chapter Title: Time Preference and Health: An Exploratory Study Chapter Author: Victor R. Fuchs ChapterUrl:http://www.nber.org/chapters/c6546 Chapter pages in book:(p 93-120)
This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: Economic Aspects of Health Volume Author/Editor: Victor R. Fuchs, editor Volume Publisher: University of Chicago Press Volume ISBN: 0-226-26785-7 Volume URL: http://www.nber.org/books/fuch82-1 Publication Date: 1982 Chapter Title: Time Preference and Health: An Exploratory Study Chapter Author: Victor R. Fuchs Chapter URL: http://www.nber.org/chapters/c6546 Chapter pages in book: (p. 93 - 120)
Time Preference and health An Exploratory Study Victor R. fuchs c& This paper reports the results of an exploratory effort in a new area- ne relationship between intertemporal choice, health behavior, and health status. Intertemporal choice(or time preference)is, of course, a subject much discussed by economists and psychologists. (See Maital and Maital 1978. ) There is also a large literature on individual behavior(e. g cigarette smoking, diet, exercise)and health status. This paper, howe,g seems to be the first to attempt to bring these subjects together and to test empirically for possible interrelations In the first section of the paper I briefly review some of the considera tions that suggest that an investigation of time preference might throw light on health behavior and health status. These include empirical stud ies of the relation between schooling and health, epidemiological inves- tigations of the health effects of cigarette smoking, diet, exercise, and the like, and theoretical issues concerning investment in human capital imperfections in capital markets, and optimizing behavior The second section considers the critical problem of the measurement of time preference and reviews some recent efforts by other investigators to measure time preference in contexts other than health. I then describe a pilot questionnaire given to 500 men and women and present the results Victor R. Fuchs is professor of Economics at Stanford University and a research associate at the National Bureau of Economic Research. This research was supported by grants from The robert wood johnson found The Henry J. Kaise Phillip Farrell provided research assistance and made many valuable suggestions. The cipants in the Stanford University Interdisci stimulating comments, and at an early stage I benefited from discussions with Martin Seligman and Richard Thaler. Helpful comments from the participants in the NBEr Conference“Eco Aspects of Health"are also gratefully acknowledged. The con- tributions of many other colleagues are indicated in the references and notes. The research reported here is part of the NBEr,'s research in the Health Economics Program. A pinions expressed are those of the author and not those of the National Bureau Economic
3 Time Preference and Health: An Exploratory Study Victor R. Fuchs This paper reports the results of an exploratory effort in a new areathe relationship between intertemporal choice, health behavior, and health status. Intertemporal choice (or time preference) is, of course, a subject much discussed by economists and psychologists. (See Maital and Maitall978.) There is also a large literature on individual behavior (e.g., cigarette smoking, diet, exercise) and health status. This paper, however, seems to be the first to attempt to bring these subjects together and to test empirically for possible interrelations. In the first section of the paper I briefly review some of the considerations that suggest that an investigation of time preference might throw light on health behavior and health status. These include empirical studies of the relation between schooling and health, epidemiological investigations of the health effects of cigarette smoking, diet, exercise, and the like, and theoretical issues concerning investment in human capital, imperfections in capital markets, and optimizing behavior. The second section considers the critical problem of the measurement of time preference and reviews some recent efforts by other investigators to measure time preference in contexts other than health. I then describe a pilot questionnaire given to 500 men and women and present the results Victor R. Fuchs is professor of Economics at Stanford University and a research associate at the National Bureau of Economic Research. This research was supported by grants from The Robert Wood Johnson Foundation and The Henry J. Kaiser Family Foundation. Phillip Farrell provided research assistance and made many valuable suggestions. The participants in the Stanford University Interdisciplinary Seminar in Decision Analysis offered stimulating comments, and at an early stage I benefited from discussions with Martin Seligman and Richard Thaler. Helpful comments from the participants in the NBER Conference “Economic Aspects of Health” are also gratefully acknowledged. The contributions of many other colleagues are indicated in the references and notes. The research reported here is part of the NBER’s research in the Health Economics Program. Any opinions expressed are those of the author and not those of the National Bureau of Economic Research. 93
ictor R. Fuchs of correlation and regression analyses of their replies. The paper con- cludes with a discussion of questions raised by this exploratory research Background Empirical considerations Cross-sectional studies of the determinants of health status in the United States usually report a strong association between health and years of schooling. This result typically aprality rates)or subjectively ppears regardless of whether health is measured objectively(e.g, mor (e. g, self-evaluation), and is equally robust in studies of differences across groups(e. g, states or cities )or across individuals(e. g, household survey data). Simple correlations between health and years of schooling are usually significant in both the statistical and the practical sense Furthermore, the relation remains strong after controlling for other variables such as income Probably the most thorough investigation of this relationship has been carried out by Michael Grossman in"The Correlation between Health and Schooling"(1975). This study of middle-aged men is particularly notable for two reasons First, a statistically significant effect of schooling on health remains after controlling for a large number of other variables, including family background, health status in high school, income, job satisfaction, and y their early 20s Second, each of the men had at least a high school diploma; the mear level of schooling was over fifteen years. Grossman's finding that the favorable effects of additional schooling persist even at high levels of schooling is in sharp contrast to the relation between income and health which is positive at low levels of income but seems to be much weaker or nonexistent at average or high levels(Auster, Leveson, and Sarachek 1969) While the relationship between schooling and health seems well estab- lished, the mechanisms through which schooling affects health are less clear, Grossman has interpreted the empirical results as support for a make the individual a more efficient producer of health. This efficiency may arise through wiser use of medical care or, what is more likely through differences in cigarette smoking, diet, and other elements of"life yle The view that" the greatest potential for improving the health of the American people.. is to be found in what people do and don,'t do to and for themselves"(Fuchs, 1967) has gained widespread acceptance in re
94 Victor R. Fuchs of correlation and regression analyses of their replies. The paper concludes with a discussion of questions raised by this exploratory research. Background Empirical considerations Cross-sectional studies of the determinants of health status in the United States usually report a strong association between health and years of schooling. This result typically appears regardless of whether health is measured objectively (e.g., mortality rates) or subjectively (e.g., self-evaluation), and is equally robust in studies of differences across groups (e.g., states or cities) or across individuals (e.g., household survey data). Simple correlations between health and years of schooling are usually significant in both the statistical and the practical sense. Furthermore, the relation remains strong after controlling for other variables such as income. Probably the most thorough investigation of this relationship has been carried out by Michael Grossman in “The Correlation .between Health and Schooling” (1975). This study of middle-aged men is particularly notable for two reasons. First, a statistically significant effect of schooling on health remains after controlling for a large number of other variables, including family background, health status in high school, income, job satisfaction, and scores on physical and mental tests taken by the men when they were in their early 20s. Second, each of the men had at least a high school diploma; the mean level of schooling was over fifteen years. Grossman’s finding that the favorable effects of additional schooling persist even at high levels of schooling is in sharp contrast to the relation between income and health, which is positive at low levels of income but seems to be much weaker or nonexistent at average or high levels (Auster, Leveson, and Sarachek 1969). While the relationship between schooling and health seems well established, the mechanisms through which schooling affects health are less clear. Grossman has interpreted the empirical results as support for a household production function model; additional years of schooling make the individual a more efficient producer of health. This efficiency may arise through wiser use of medical care or, what is more likely, through differences in cigarette smoking, diet, and other elements of “life style. ” The view that “the greatest potential for improving the health of the American people. . . is to be found in what people do and don’t do to and for themselves” (Fuchs, 1967) has gained widespread acceptance in re-
Time Preference and Health cent years as the result of numerous studies by epidemiologists and social ntists interested in health These studie ences in health status and in life expectancy associated with such factors as cigarette smoking, diet, and exercise. Not only is a statistical correla tion well established but in many instances there is some understanding of the causal mechanisms as well, e. g, the role of diet and exercise in the prevention of atherosclerosis. What is not understood at all well is the cause of individual variation in health-related behavior From an economic point of view many of these behaviors have common characteristic--they involve trade-offs between current costs and future benefits. The costs may be purely psychic, such as the loss of pleasure from passing up a rich dessert or a cigarette. They may involve time, such as jogging, or they may involve other costs including financial and nonfinancial resources. The expected benefits typically take the form of reductions in the probability of morbidity and mortality from one or more diseases sometime in the future Theoretical considerations e The acceptance of a current cost for a future benefit constitutes an vestment. Becker's development of the theory of investment in human capital(Becker 1964)and Grossman's application of this theory spe- cifically to health(Grossman 1972) provide a convenient framework for thinking about these health behaviors. Suppose individuals differ in their willingness or ability to undertake investments, i. e, they have different time preferences. Such differences might help to explain variations in cigarette smoking, diet, and the like. Furthermore, this approach sug- links with the health-schooling relationship that has bee found by so many investigators There are at least two ways that individual variation in time preference ould explain the correlation between schooling and health. 2 First, sup- pose that differences in time preference are established early in life, are relatively stable, and do affect subsequent behavior. These differences might be due to differences in the education or income of parents, the stability of the family, the values associated with different religions, or other background characteristics. Given variation in time preference, it would not be surprising to observe that individuals with low rates of time discount would invest in many years of schooling and would also invest in health-enhancing activities. According to this view schooling has no direct effect on health; the observed correlation is due to both schooling and health as depending upon time preference A second possibility(the two explanations are not mutually exclusive) is that schooling actually affects time preference; those with more schoo ing are more willing to invest at a lower rate of return. Thus more schooling could result in better health by increasing investments in
95 Time Preference and Health cent years as the result of numerous studies by epidemiologists and social scientists interested in health.’ These studies report significant differences in health status and in life expectancy associated with such factors as cigarette smoking, diet, and exercise. Not only is a statistical correlation well established, but in many instances there is some understanding of the causal mechanisms as well, e.g., the role of diet and exercise in the prevention of atherosclerosis. What is not understood at all well is the cause of individual variation in health-related behavior. From an economic point of view many of these behaviors have a common characteristic-they involve trade-offs between current costs and future benefits. The costs may be purely psychic, such as the loss of pleasure from passing up a rich dessert or a cigarette. They may involve time, such as jogging, or they may involve other costs including financial and nonfinancial resources. The expected benefits typically take the form of reductions in the probability of morbidity and mortality from one or more diseases sometime in the future. Theoretical considerations The acceptance of a current cost for a future benefit constitutes an investment. Becker’s development of the theory of investment in human capital (Becker 1964) and Grossman’s application of this theory specifically to health (Grossman 1972) provide a convenient framework for thinking about these health behaviors. Suppose individuals differ in their willingness or ability to undertake investments, i.e., they have different time preferences. Such differences might help to explain variations in cigarette smoking, diet, and the like. Furthermore, this approach suggests possible links with the health-schooling relationship that has been found by so many investigators. There are at least two ways that individual variation in time preference could explain the correlation between schooling and health.* First, suppose that differences in time preference are established early in life, are relatively stable, and do affect subsequent behavior.’ These differences might be due to differences in the education or income of parents, the stability of the family, the values associated with different religions, or to other background characteristics. Given variation in time preference, it would not be surprising to observe that individuals with low rates of time discount would invest in many years of schooling and would also invest in health-enhancing activities. According to this view schooling has no direct effect on health; the observed correlation is due to both schooling and health as depending upon time preference. A second possibility (the two explanations are not mutually exclusive) is that schooling actually affects time preference; those with more schooling are more willing to invest at a lower rate of ret~rn.~ Thus more schooling could result in better health by increasing investments in
ictor R. fuchs health. The empirical portion of this paper, based on a single cross section survey, cannot distinguish between these two hypotheses, but we can test for possible relations between schooling and time preference Empirical investigation of time preference through survey questions designed to elicit marginal rates of time discount depends critically on capital markets being"imperfect. "If capital markets were perfect (i. e, if individuals could borrow and lend without limit at a single market rate of interest)marginal rates would be equal for all regardless of time prefer ence. Differences across individuals in time preference might still result in differences in nontradeable health-related activities but these would not be predictable from the replies to interest rate questions. However, if capital markets are not perfect(an assumption of this paper), individuals may well have different rates of interest at the margin, and these may be related to health behavior and health status Let us imagine a two-period world. Suppose utility in each period depends upon consumption of goods(G). Utility in the first period also is a function of some activity C(for simplicity assumed to be free with respect to G)which affects health(and therefore utility) in period two For example C1 might be cigarette smokin U1=U1(G1,C1) U2=U2(G2, H2) where H2=H(C1) a wealth compensated increase in the rate of interest(r)will,ceteris paribus, alter the allocation of wealth between G1 and G2. But if the marginal utility of C depends on the quantity of G,(and the marginal utility of H2 depends on the quantity of G2), the change in r will also affect C(and H2). If G, and C(and G2 and H2) are substitutes, an increase inr will lead to an increase in C, and a decrease in H2. If the relationship is complementary (which seems less plausible to me), the reverse would be It should be emphasized that(given imperfect capital markets ) differ- ences across individuals in marginal rates of interest can be the result of differences in underlying preference functions(indifference curves)or differences in opportunities to borrow and lend. In general, it will not be possible to distinguish between these sources empirically, although con trolling for family income(as a proxy for"opportunities" )may move the analysis somewhat closer to a focus on preference functions per se Because time preference is probably only one of many factors affecti the demand for cigarettes, jogging, or other health- related behaviors, we can hardly expect perfect correlation among these activities. Differences in time preference across individuals, however, should result in some positive correlations among these behaviors
96 Victor R. Fuchs health. The empirical portion of this paper, based on a single crosssection survey, cannot distinguish between these two hypotheses, but we can test for possible relations between schooling and time preference. Empirical investigation of time preference through survey questions designed to elicit marginal rates of time discount depends critically on capital markets being “imperfect.” If capital markets were perfect (i.e., if individuals could borrow and lend without limit at a single market rate of interest) marginal rates would be equal for all regardless of time preference. Differences across individuals in time preference might still result in differences in nontradeable health-related activities, but these would not be predictable from the replies to interest rate questions. However, if capital markets are not perfect (an assumption of this paper), individuals may well have different rates of interest at the margin, and these may be related to health behavior and health status. Let us imagine a two-period world. Suppose utility in each period depends upon consumption of goods (G). Utility in the first period also is a function of some activity C1 (for simplicity assumed to be free with respect to G) which affects health (and therefore utility) in period two. For example C1 might be cigarette smoking: u1= U1(GI,CJ U2 = U2(G2,H2) where H2 = H(Cl). A wealth compensated increase in the rate of interest (r) will, ceteris paribus, alter the allocation of wealth between GI and G2. But if the marginal utility of C1 depends on the quantity of G1 (and the marginal utility of H2 depends on the quantity of G2), the change in r will also affect C1 (and H2). If GI and C1 (and G2 and H2) are substitutes, an increase in r will lead to an increase in C1 and a decrease in H2. If the relationship is complementary (which seems less plausible to me), the reverse would be true. It should be emphasized that (given imperfect capital markets) differences across individuals in marginal rates of interest can be the result of differences in underlying preference functions (indifference curves) or differences in opportunities to borrow and lend.5 In general, it will not be possible to distinguish between these sources empirically, although controlling for family income (as a proxy for “opportunities”) may move the analysis somewhat closer to a focus on preference functions per se. Because time preference is probably only one of many factors affecting the demand for cigarettes, jogging, or other health-related behaviors, we can hardly expect perfect correlation among these activities. Differences in time preference across individuals, however, should result in some positive correlations among these behaviors