Macroeconomic dynamics under bounded rationality: on the impact of consumers’ forecast heuristics

Journal of Economic Interaction and Coordination - This paper considers various types of forecast heuristics to examine the effects of boundedly rational agents on macroeconomic dynamics. Given the...     

CREDIT,DEFAULT, AND OPTIMAL HEALTH INSURANCE

I study how credit and default affect optimal health insurance, constructing a life-cycle model of health investment with a strategic default option on emergency room bills and financial debts. The model is calibrated to the U.S. economy and used to compare the optimal policy for Medicaid by the availability of the default option and credit. I find that strategic default induces the optimal policy to be more redistributive. With (Without) the option, the optimal income threshold for Medicaid eligibility is 44% (25%) of the average income. In these findings, the interaction between strategic default and preventative medical spending is important.