Health, health production and input financing: A theoretical note

Abstract

We develop a health production model with input financing in the spirit of standard health capital model. Health production depends not only on tangible inputs required to produce health services, but also depends on institutional set up or governance, and general awareness about health and related issues. In our model, part or all of inputs required to produce health is financed through tax revenues. Using Cobb-Douglas utility and production function, we explore the optimum tax rate under various scenarios of health care financing through tax revenues. The model is further extended to account for increasing returns to scale where input elasticity parameters in health production are not same. We find that increasing returns to scale in health production calls for higher tax rate to finance health productions.

Keywords

• health demand
• grossman model
• behavioral factors
• government policy