The Impact of Wealth on Health Behaviors: a research paper

According to their model, the marginal cost of unhealthy consumption consists not only of the direct monetary outlays, as in standard life cycle models, but also of a health cost (value of health lost). As a result, wealth has two competing effects: (i) a direct wealth effect increasing demand for unhealthy consumption (wealth allows individuals to purchase more [unhealthy] consumption goods), and (ii) an indirect health cost effect decreasing the demand for unhealthy consumption goods (the health cost is higher for those who invest more in health, i.e. for wealthy individuals). Which of the two effects dominates is theoretically ambiguous, but, according to our theory, the indirect health cost effect is larger for the wealthy and for severely unhealthy goods. The health cost increases with wealth and the degree of unhealthiness, leading wealthier individuals to consume more healthy and moderately unhealthy, but fewer severely unhealthy goods.

The empirical evidence suggests that differences in health costs may provide an explanation for observed behavioral differences between wealth groups. A wealth increase leads to more moderately unhealthy consumption such as moderate drinking for all individuals, but no change in heavy drinking. The effects on severely unhealthy consumption, such as smoking and the number of cigarettes, are stronger among the least wealthy. The findings further suggest that health status is very important in explaining health behavior: only among individuals in good health do we find strong increases in unhealthy behavior, suggesting that the health cost of unhealthy consumption is smaller among the healthy.