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A Revisit to the Grossman Model with Endogenous Health Depreciation

Author

Listed:
  • Rong Fu

    () (Graduate School of Economics, Waseda University)

  • Haruko Noguchi

    () (School of Political Science and Economics, Waseda University)

  • Koichi Suga

    () (School of Political Science and Economics, Waseda University)

Abstract

We extend the Grossman health capital model by relaxing the exogenous health depreciation rate to model the direct and indirect channels through which people improve their health through health investment. We confirm that the marginal cost of health supply decreases when the depreciation rate is an endogenous function of health investment and that the marginally reduced cost is greater for people in later life stages. We also find that the indirect channel—depreciation rate reduction—is more effective for people in good health; however, the direct channel—the classical Grossman model—is more powerful for those in poor health. Our findings provide a more comprehensive view of the procedure for optimal health determination.

Suggested Citation

  • Rong Fu & Haruko Noguchi & Koichi Suga, 2016. "A Revisit to the Grossman Model with Endogenous Health Depreciation," Economics Bulletin, AccessEcon, vol. 36(4), pages 2405-2412.
  • Handle: RePEc:ebl:ecbull:eb-16-00390
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    File URL: http://www.accessecon.com/Pubs/EB/2016/Volume36/EB-16-V36-I4-P232.pdf
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    References listed on IDEAS

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    1. repec:aph:ajpbhl:2003:93:2:318-323_0 is not listed on IDEAS
    2. Yogo, Motohiro, 2016. "Portfolio choice in retirement: Health risk and the demand for annuities, housing, and risky assets," Journal of Monetary Economics, Elsevier, vol. 80(C), pages 17-34.
    3. Peter Zweifel, 2012. "The Grossman model after 40 years," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 13(6), pages 677-682, December.
    4. Liljas, Bengt, 1998. "The demand for health with uncertainty and insurance," Journal of Health Economics, Elsevier, vol. 17(2), pages 153-170, April.
    5. 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 223-255, March-Apr.
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    More about this item

    Keywords

    Grossman model; endogenous depreciation rate; health capital;

    JEL classification:

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

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