under the existing technology can be represented here as an increase in insurance mar-
ket efficiency from τ to
τ
′
, with the total spent on the subsidy being:
where
i
∗
(Y,τ
′
,x
1
)
is the co-insurance chosen by the consumer in the presence of
the subsidy. To compare the relative efficiency of public subsidization of consumption
smoothing versus health smoothing, we may consider
τ
′
chosen so that the amount
spent on the expenditure subsidy is the same as that spent on R&D investment:
The value of the expenditure subsidy in terms of willingness to pay can be defined as:
while the value of the R&D investment can ...
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