Optimal Paternalistic Health and Human Capital Policies

Marcelo Arbex 
We characterize first best subsidies on human and health allocations when there is a paternalistic motive to overcome present bias problems of agents with heterogeneous cognitive skills. We focus the analysis on linear earnings subsidy that rewards individuals for the combined health and human sinvestiment decision. Our results highlight two novel aspects of paternalistic policies: (i) because our model adresses human capital investiment, we find a supply side effect that magnifies the traditional increase on the future choice set of time- inconsistent individuals, and (ii) an additional trade-off emerges evolving leisure and human capital decision. This last effect is enriched by heterogenous cognitive skills. We illustrate numerically that our policy package is the most effective compared to the literature and we analyze the relevance of agent’s cognitive skills and present-biased preferences for the determination of first-best and constrained first-best optimal policies. 
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