Empirical evidence for decreasing returns to scale in a health capital model
AbstractWe estimate a health investment equation, derived from a health capital model that is an extension of the well-known Grossman model. Of particular interest is whether the health production function has constant returns to scale, as in the standard Grossman model, or decreasing returns to scale, as in the Ehrlich-Chuma model and extensions thereof. The model with decreasing returns to scale has a number of theoretically and empirically desirable characteristics that the constant returns model does not have. Although our empirical equation does not point-identify the decreasing returns to scale curvature parameter, it does allow us to test for constant versus decreasing returns to scale. The results are suggestive of decreasing returns and in line with prior estimates from the literature. But when we attempt to control for the endogeneity of health by using instrumental variables, the results become inconclusive. This brings into question the robustness of prior estimates in this literature.
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Bibliographic InfoPaper provided by HEDG, c/o Department of Economics, University of York in its series Health, Econometrics and Data Group (HEDG) Working Papers with number 12/05.
Date of creation: Mar 2012
Date of revision:
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health investment; lifecycle model; Grossman model; optimal control;
Other versions of this item:
- 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.
- I12 - Health, Education, and Welfare - - Health - - - Health Production
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
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