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Grossman’s Missing Health Threshold

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  • Titus J. Galama

    (RAND Corporation)

  • Arie Kapteyn

    (RAND Corporation)

Abstract

We present a generalized solution to Grossman’s model of health capital (1972), relaxing the widely used assumption that individuals can adjust their health stock instantaneously to an “optimal” level without adjustment costs. The Grossman model then predicts the existence of a health threshold above which individuals do not demand medical care. Our generalized solution addresses a significant criticism: the model’s prediction that health and medical care are positively related is consistently rejected by the data. We suggest structural and reduced form equations to test our generalized solution and contrast the predictions of the model with the empirical literature.

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File URL: http://www.ucd.ie/geary/static/publications/workingpapers/gearywp200947.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by Geary Institute, University College Dublin in its series Working Papers with number 200947.

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Length: 41 pages
Date of creation: 16 Dec 2009
Date of revision:
Handle: RePEc:ucd:wpaper:200947

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Keywords: health; demand for health; health capital; medical care; labor;

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References

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  1. Hans van Kippersluis & Owen O'Donnell & Eddy van Doorslaer & Tom Van Ourti, 2009. "Socioeconomic Differences in Health over the Life Cycle in an Egalitarian Country," Tinbergen Institute Discussion Papers 09-006/3, Tinbergen Institute.
  2. Cropper, M L, 1981. "Measuring the Benefits from Reduced Morbidity," American Economic Review, American Economic Association, vol. 71(2), pages 235-40, May.
  3. Gerdtham, Ulf-G & Johannesson, Magnus, 1997. "New Estimates of the Demand for Health: Results Based on a Categorical Health Measure and Swedish Micro Data," Working Paper Series in Economics and Finance 205, Stockholm School of Economics.
  4. Wolfe, John R, 1985. "A Model of Declining Health and Retirement," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1258-67, December.
  5. Hans van Kippersluis & Tom van Ourti & Owen O'Donnell & Eddy van Doorslaer, 2008. "Health and Income across the Life Cycle and Generations in Europe," Tinbergen Institute Discussion Papers 08-009/3, Tinbergen Institute.
  6. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
  7. Wagstaff, Adam, 1986. "The demand for health : Some new empirical evidence," Journal of Health Economics, Elsevier, vol. 5(3), pages 195-233, September.
  8. Anne Case & Angus S. Deaton, 2005. "Broken Down by Work and Sex: How Our Health Declines," NBER Chapters, in: Analyses in the Economics of Aging, pages 185-212 National Bureau of Economic Research, Inc.
  9. Grossman, Michael, 1972. "On the Concept of Health Capital and the Demand for Health," Journal of Political Economy, University of Chicago Press, vol. 80(2), pages 223-55, March-Apr.
  10. Amy Finkelstein & Erzo F. P. Luttmer & Matthew J. Notowidigdo, 2013. "What Good Is Wealth Without Health? The Effect Of Health On The Marginal Utility Of Consumption," Journal of the European Economic Association, European Economic Association, vol. 11, pages 221-258, 01.
  11. Ried, Walter, 1998. "Comparative dynamic analysis of the full Grossman model," Journal of Health Economics, Elsevier, vol. 17(4), pages 383-425, August.
  12. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1.
  13. James P. Smith, 2004. "Unravelling the SES health connection," IFS Working Papers W04/02, Institute for Fiscal Studies.
  14. Ehrlich, Isaac & Chuma, Hiroyuki, 1990. "A Model of the Demand for Longevity and the Value of Life Extension," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 761-82, August.
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  16. Grossman, Michael, 2000. "The human capital model," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 7, pages 347-408 Elsevier.
  17. Gerdtham, U. -G. & Johannesson, M. & Lundberg, L. & Isacson, D., 1999. "The demand for health: results from new measures of health capital," European Journal of Political Economy, Elsevier, vol. 15(3), pages 501-521, September.
  18. Cropper, M L, 1977. "Health, Investment in Health, and Occupational Choice," Journal of Political Economy, University of Chicago Press, vol. 85(6), pages 1273-94, December.
  19. Muurinen, Jaana-Marja & Le Grand, Julian, 1985. "The economic analysis of inequalities in health," Social Science & Medicine, Elsevier, vol. 20(10), pages 1029-1035, January.
  20. Michael Grossman, 1972. "The Demand for Health: A Theoretical and Empirical Investigation," NBER Books, National Bureau of Economic Research, Inc, number gros72-1.
  21. James P. Smith, 1999. "Healthy Bodies and Thick Wallets: The Dual Relation between Health and Economic Status," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 145-166, Spring.
  22. James P. Smith, 2007. "The Impact of Socioeconomic Status on Health over the Life-Course," Journal of Human Resources, University of Wisconsin Press, vol. 42(4).
  23. Dana P. Goldman & James P. Smith, 2004. "Can Patient Self-Management Help Explain the SES Health Gradient?," HEW 0403004, EconWPA.
  24. Titus Galama & Arie Kapteyn & Raquel Fonseca & Pierre-Carl Michaud, 2008. "Grossman's Health Threshold and Retirement," Working Papers 658, RAND Corporation Publications Department.
  25. Van de Ven, Wynand P. M. M. & Van Der Gaag, Jacques, 1982. "Health as an unobservable : A MIMIC-model of demand for health care," Journal of Health Economics, Elsevier, vol. 1(2), pages 157-183, August.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Galama and Kapteyn: Grossman's Missing Threshold
    by Liam Delaney in Geary Behaviour Centre on 2009-12-23 02:29:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Audrey Laporte, 2014. "Should the Grossman model retain its Iconic status in health economics?," Working Papers 140003, Canadian Centre for Health Economics.
  2. Titus J. Galama & Hans van Kippersluis, 2010. "A Theory of Socioeconomic Disparities in Health over the Life Cycle," Tinbergen Institute Discussion Papers 10-079/3, Tinbergen Institute.
  3. Fabrizio Mazzona & Franco Peracchi, 2010. "Ageing, cognitive abilities and retirement," EIEF Working Papers Series 1015, Einaudi Institute for Economics and Finance (EIEF), revised Jan 2012.
  4. Titus J. Galama & Patrick Hullegie & Erik Meijer & Sarah Outcault, 2012. "Is There Empirical Evidence For Decreasing Returns To Scale In A Health Capital Model?," Health Economics, John Wiley & Sons, Ltd., vol. 21(9), pages 1080-1100, 09.
  5. Peter Zweifel, 2012. "The Grossman model after 40 years," The European Journal of Health Economics, Springer, vol. 13(6), pages 677-682, December.
  6. Hullegie, P.G.J., 2012. "Essays on health and labor economics," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5637283, Tilburg University.
  7. Bolin, Kristian & Liljas, Bengt & Lindgren, Björn, 2014. "Individual technologies for health - the implications of distinguishing between the ability to produce health investments and the capacity to benefit from those investments," Working Papers in Economics 587, University of Gothenburg, Department of Economics.
  8. Bolin, Kristian & Lindgren, Björn, 2014. "Non-monotonic health behaviours - implications for individual health-related behaviour in a demand-for-health framework," Working Papers in Economics 588, University of Gothenburg, Department of Economics.

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