Modelling the health related benefits of environmental policies - a CGE analysis for the eu countries with gem-e3

10

H is a health index. It is defined as follows:

H=H^*-∑β1,mAm+β2MED                   (3)

m

H^* is the exogenous level of health that can be obtained if there is no air pollution and if
the consumer does not consume any medical services. β1,m and β2 are parameters
describing the impact on health of air pollution and of the consumption of medical
services.

The utility function at the upper level is maximized subject to the budget
constraint

p_CC+ wl+p_MEDMED≤Y                      (4)

taking into account equation (3). The budget constraint states that total spending on
consumption, leisure and medical care cannot exceed total income Y. pC is the
consumer price of C. It is the sum of the producer price qC and the tax tC.
pMED=qMED+tMED is the consumer price of medical services. The tax on medical services
(tMED) is negative, reflecting the subsidisation of medical care through the social
security system in the EU countries. w is the net wage rate. Total available income is
given by:

Y = w^fT-∑θ A VP                   (5)

mm

\     m=1       y

P is non-labour income. T stands for total available time. Due to its health effects air
pollution reduces total available time by an amount θm per unit of change in the
concentration of air pollutant m w.r.t. the reference situation. It is assumed that the time
costs of bad health are borne partly by the consumers and partly by the production
sectors. This reflects the institutional context in EU countries where in the case of the
less severe health effects producers continue to pay workers when they are ill.

framework.

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