This thesis has been awarded the Netspar Bachelor Thesis Award 2015, sponsored by the UWV Pension Fund.
Good health is vital for all the living and there is an insatiable demand for it, especially among the elderly because health generally declines with age. This paper investigates whether people can buy higher quality medical care and in exchange, receive improvements in health perception. The analysis covers the trade of out-of-pocket (OOP) health expenditures for improved self-assessed health status by using two samples drawn from the data of the Survey of Health, Ageing and Retirement in Europe (SHARE) – which is representative for people at the age of 50 and older. Two models are introduced, where model 1 embraces a 2-part model and model 2 considers a tobit model; then, some econometrics issues are addressed to obtain more efficient estimates. As a result, sample 1 shows a positive but weak sign for the effect of OOP medical expense on health perception improvements, whereas in sample 2 a much stronger but not large in magnitude relation is found in the negative direction. That is in the latter sample, people are less likely to have improvements in health status when OOP expenses are increased so they “cannot buy good health with these payments”. Robustness checks confirm these findings: they suggest the ability to purchase an improved health status by OOP expenditures in 2004-05 (sample 1) but not in 2006-07 (sample 2). However, empirical evidence show clearly that higher elasticities in the OOP medical expenditure in the years 2004-05 and 2006-07 corresponds to an improved health status by 2006-07 and 2010-11 in Greece for both sample 1 and sample 2 respectively. This could be explained by the fact that OOP expenses – in the form of informal payments (such as gratitude money) – in Western-Europe are anecdotal while in Greece it is widespread [Dixon et al., 2002, p. 23].