Journal Article Consumer Preferences, Linear Demand Functions and Aggregation in Competitive Asset Markets Get access Frank Milne Frank Milne Australian National University and University of Rochester Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 46, Issue 3, July 1979, Pages 407–417, https://doi.org/10.2307/2297010 Published: 01 July 1979 Article history Received: 01 March 1977 Accepted: 01 September 1978 Published: 01 July 1979

This paper develops a model for interdependent demand for health insurance and health care under uncertainty to throw light on the issue of insurance-induced distortions in the demand for health care services. The model is used to empirically analyse the determinants of the choice of health insurance type and seven types of health care services using micro-level data from the 1977–78 Australian Health Survey. Econometric implementation of the model involves, simultaneously, issues of discreteness of choice, selectivity and stochastic dependence between health insurance and utilization. Health status appears to be more important in determining health care service use than health insurance choice, while income appears to be more important in determining health insurance choice than in determining health care service use. For a broad range of health care services both moral hazard and self selection are found to be important determinants of utilization of health care services.