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A synthesis of the Grossman and Becker-Murphy models of health and addiction: theoretical and empirical implications

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  • Jones, A. M.;
  • Laporte, A.;
  • Rice, N.;
  • Zucchelli, E.;

Abstract

This paper develops and estimates a model that integrates two fundamental theories of individual health behavior: the Becker-Murphy model of rational addiction and the Grossman model of health investment. We define an individual's lifetime smoking consumption pattern and investments in health capital as simultaneous choices within a single optimisation problem allowing for the presence of an addiction stock and investments in preventive medical care. The resulting system of first-order difference equations is reduced to a single fourth-order difference equation defined both for smoking and health and which preserve the dynamic roots of the system. GMM systemsestimation using the British Household Panel Survey reveals strong persistence in the evolution of both smoking consumption and health capital with direct effects of past health and smoking observed for up to three and four lagged periods for men and women respectively. Conditional on dynamics there is a limited role for the direct effects of socio-economic status. A convincing understanding of an individual's optimal lifetime health trajectory requires an appreciation of how both investments and accumulated disinvestments in health separately impact on the dynamics of health capital. The integrated approach presented here offers such a framework.

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Bibliographic Info

Paper provided by HEDG, c/o Department of Economics, University of York in its series Health, Econometrics and Data Group (HEDG) Working Papers with number 14/07.

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Date of creation: Apr 2014
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Handle: RePEc:yor:hectdg:14/07

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Web page: http://www.york.ac.uk/economics/postgrad/herc/hedg/
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Keywords: Addiction; Health capital; Smoking; Dynamic panel data models;

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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.

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