Estimating the Impact of Medication on Diabetics' Diet and Lifestyle Choices

Theoretical Model

We begin with a standard model influenced by Becker (1965), Lancaster (1966) and Grossman
(1972) of consumer demand that assumes individuals gain utility from behaviors (B), health (H)
and all other goods (C). For our purposes, behaviors over which utility is defined are selecting a
nutritionally poor diet and having a sedentary lifestyle. These are exactly opposite to the dietary
and lifestyle choices that diabetics are typically encouraged to make: limit consumption of sugar,
fat, and cholesterol and maintain at least a moderate level of physical activity (American
Diabetes Association, no date; U.S. Department of Health and Human Services, Centers for
Disease Control and Prevention, 2005). Such recommendations may be difficult to follow
because, though they offer long-term health benefits, they may also entail an immediate cost,
such as foregoing dessert or spending 30 minutes on a tread-mill instead of watching TV.

However, as long as good health enters the utility function, the health-compromising
(undesirable) attributes of behaviors also influence the utility maximization. Define H as a
perceived health production function. For simplicity, we assume that individuals manage health
through behaviors and medication (M). Also, we assume that how highly an individual assesses
his or her current level of health is driven by η , a parameter that represents medical evidence of
a current health condition. For example, someone who was told that he or she had type II
diabetes would assess his or her health at a lower level than before learning this news. Thus,
there is an inverse relationship between H and η . Other goods (C) are assumed to have no direct
impact on health.

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