Modelling opportunity in health under partial observability of circumstances

This paper proposes a behavioural model of inequality of opportunity in health that integrates John Roemer's framework of inequality of opportunity with the Grossman model of health capital and demand for health. The model generates a recursive system of equations for health and lifestyles, which is then jointly estimated by full information maximum likelihood with freely correlated error terms. The analysis innovates by accounting for the presence of unobserved heterogeneity, therefore addressing the partial-circumstance problem, and by extending the examination of inequality of opportunity to health outcomes other than self-assessed health, such as long-standing illness, disability and mental health. The results provide evidence for the existence of third factors that simultaneously influence health outcomes and lifestyle choices, supporting the empirical relevance of the partial-circumstance problem. Accounting for these factors, the paper corroborates that the effect of parental and early circumstances on adult health disparities is paramount. However, the particular set of circumstances that affect each of the analysed health outcomes differs substantially. The results also show that differences in educational opportunities, and in social development in childhood, are crucial determinants of lifestyles in adulthood, which, in turn, shape the observed health inequalities.