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The Human Capital Model of the Demand for Health

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Author Info
Michael Grossman

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Abstract

This paper contains a detailed treatment of the human capital model of the demand for health. Theoretical predictions are discussed, and theoretical extensions are reviewed. Empirical research that tests the predictions of the model or studies causality between years of formal schooling completed and good health is surveyed. The model views health as a durable capital stock that yields an output of healthy time. Individuals inherit an initial amount of this stock that depreciates with age and can be increased by investment. The household production function model of consumer behavior is employed to account for the gap between health as an output and medical care as one of many inputs into its production. In this framework the shadow price' of health depends on many variables besides the price of medical care. It is shown that the shadow price rises with age if the rate of depreciation on the stock of health rises over the life cycle and falls with education if more educated people are more efficient producers of health. An important result is that, under certain conditions, an increase in the shadow price may simultaneously reduce the quantity of health demanded and increase the quantities of health inputs demanded.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7078.

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Date of creation: Apr 1999
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Publication status: published as Handbook of Health Economics, Newhouse, Joseph P. and Anthony J. Culyer,eds., Amsterdam: North-Holland, forthcoming.
Handle: RePEc:nbr:nberwo:7078

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I10 - Health, Education, and Welfare - - Health - - - General

References listed on IDEAS
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  1. David Archer & Thomas Crocker & Jason Shogren, 2006. "Choosing Children’s Environmental Risk," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 33(3), pages 347-369, 03. [Downloadable!] (restricted)
  2. Andrén, Daniela & Palmer, Edward, 2001. "The Effect Of Sickness On Earnings," Working Papers in Economics 45, Göteborg University, Department of Economics. [Downloadable!]
  3. Anthony Harris, 2008. "Chronic Disease and Labour Force Participation in Australia: an endogenous multivariate probit analysis of clinical prevalence data," Centre for Health Economics Research Papers 25/08, Monash University, Centre for Health Economics. [Downloadable!]
  4. Claire Finn & Colm Harmon, 2006. "A dynamic model of demand for private health insurance in Ireland by and," Working Papers 200612, Geary Institute, University College Dublin. [Downloadable!]
  5. Mark Agee & Thomas Crocker, 2007. "Children’s health benefits of reducing environmental tobacco smoke exposure: evidence from parents who smoke," Empirical Economics, Springer, vol. 32(1), pages 217-237, April. [Downloadable!] (restricted)
  6. Rama Joglekar, . "Can Insurance Reduce Catastrophic Out-of-Pocket Health Expenditure," Working Papers id:1647, esocialsciences.com. [Downloadable!]
  7. Cecilia Albert & María A. Davia, 2004. "Salud, salarios y educación," Hacienda Pública Española, IEF, vol. 169(2), pages 11-34, June. [Downloadable!]
  8. Sidorenko, Alexandra, 2001. "Stochastic Model of Demand for Medical Care with Endogenous Labour Supply and Health Insurance," Departmental Working Papers 2001-08, Australian National University, Economics RSPAS. [Downloadable!]
  9. Gustavo Adolfo García Cruz. & Luís Miguel Tovar Cuevas, 2006. "La Percepción del Estado de Salud: Una Mirada a las Regiones desde la Encuesta de Calidad de Vida 2003," DOCUMENTOS DE TRABAJO-CIDSE 003972, UNIVERSIDAD DEL VALLE - CIDSE. [Downloadable!]
  10. Claire Finn & Colm Harmon, 2006. "A Dynamic Model of Demand for Private Health Insurance in Ireland," IZA Discussion Papers 2472, Institute for the Study of Labor (IZA). [Downloadable!]
  11. Stefanie Schurer, 2008. "Discrete Heterogeneity in the Impact of Health Shocks on Labour Market Outcomes," Melbourne Institute Working Paper Series wp2008n19, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne. [Downloadable!]
  12. Andrén, Daniela & Palmer, Edward, 2004. "The Effect of Past Sickness on Current Earnings in Sweden," Working Papers in Economics 138, Göteborg University, Department of Economics. [Downloadable!]
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