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Making the Grossman Model Stochastic: Investment in Health as a Stochastic Control Problem

Author

Listed:
  • Audrey Laporte
  • Brian Ferguson

Abstract

It is well known that uncertainty is a key consideration in theoretical health economics analysis. The literature has shown that uncertainty is a multifaceted concept, with the individual's optimal response depending on the formal nature of the uncertainty and the time horizon involved. This paper extends the literature by considering uncertainty with regards to the cumulative effect on health capital of on-going health behaviours. It uses techniques of stochastic optimal control to analyze uncertainty which can be represented as a Weiner process and shows how, in a Grossman health investment framework, the optimal lifetime health investment trajectory might be affected.

Suggested Citation

  • Audrey Laporte & Brian Ferguson, 2017. "Making the Grossman Model Stochastic: Investment in Health as a Stochastic Control Problem," Working Papers 170009, Canadian Centre for Health Economics.
    • Handle: RePEc:cch:wpaper:170009
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    File URL: https://www.canadiancentreforhealtheconomics.ca/wp-content/uploads/2017/07/Laporte-Ferguson-1.pdf
    File Function: First version, 2017
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    More about this item

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior

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