An ounce of prevention or a pound of cure? The value of health risk information
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Citation (published version)Hoagland, A. (2021). An Ounce of Prevention or a Pound of Cure? The Value of Health Risk Information. Working Paper.
Individuals infer their health risk from observing the health experiences of people around them, particularly family members. I assess whether people correctly interpret new information from these events and analyze resulting welfare implications. When an individual is diagnosed with a new chronic condition, unaffected family members increase their healthcare spending by over 10 percent. Informational spillovers are associated with increased use of both high- and low-return care, including takeup of new services and increased adherence to extant ones. I show these responses are consistent with individual reevaluations of health risk and reject other mechanisms. To assess welfare implications, I estimate a structural model of health choices in which individuals learn about risk after health events reveal information. I find that consumers over-respond to recent, salient health events by over-weighting their risks ex-post. This over-responsiveness leads to annual welfare losses of $2,788 per family on average; suppressing responsiveness results in net gains for 86 percent of households. Revealing health risk information can be optimally targeted on household demographics to improve social welfare gains.