How much health is worth having?

Find the best health stock

The MEI curve shows what one more unit of health returns at each health stock; the amber line is what holding it costs. Drag the dot, tap the graph, or use the slider.

Try this: drop r to 1%, as when interest rates are near zero. Where does H* go? Then raise it to 10%, as if Ed paid for his gym membership with a credit card.

Prediction 1: health declines with age

As Ed gets older his health wears out faster, so δ rises. That pushes the cost line up, while the MEI curve stays exactly where it was.

Ed’s best health stock, H*, at each age

Try this: move from 25 to 65. Did the MEI curve move at all? What did?

Prediction 2: higher earners are healthier

A raise makes every healthy day Ed gains worth more money, so every unit of health returns more. The MEI shifts right to MEI′ while the cost line stays put.

Look at the change column: a raise multiplies every return, so MEI′ is stretched upward rather than slid. The gap is biggest at low health, where returns were already high.

One wrinkle: a raise also makes the time Ed spends on health more expensive, like hours at the doctor, so the textbook notes the overall effect could in principle go either way. The slide’s prediction assumes the higher payoff wins.

Prediction 3: the educated are healthier

Educated people tend to be more efficient producers of health: the same time and medical care produce more health. In this made-up example, each year of school makes health investment 5% more productive, which shifts the MEI right, just like a raise.

Try this: compare 10 and 16 years. The slides point out that college grads benefit more than high school dropouts. Which piece of the graph explains that?

Check yourself