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Grossman’s missing health threshold


  • Galama, Titus
  • Kapteyn, Arie


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.

Suggested Citation

  • Galama, Titus & Kapteyn, Arie, 2011. "Grossman’s missing health threshold," Journal of Health Economics, Elsevier, vol. 30(5), pages 1044-1056.
  • Handle: RePEc:eee:jhecon:v:30:y:2011:i:5:p:1044-1056
    DOI: 10.1016/j.jhealeco.2011.06.004

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    References listed on IDEAS

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    Cited by:

    1. Hullegie, P.G.J., 2012. "Essays on health and labor economics," Other publications TiSEM dcc68fc9-7af1-4ba9-8f90-6, Tilburg University, School of Economics and Management.
    2. 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, September.
    3. Mazzonna, Fabrizio & Peracchi, Franco, 2012. "Ageing, cognitive abilities and retirement," European Economic Review, Elsevier, vol. 56(4), pages 691-710.
    4. Bolin, Kristian & Lindgren, Björn, 2016. "Non-monotonic health behaviours – implications for individual health-related behaviour in a demand-for-health framework," Journal of Health Economics, Elsevier, vol. 50(C), pages 9-26.
    5. Audrey Laporte, 2014. "Should the Grossman model of investment in health capital retain its iconic status?," Working Papers 140003, Canadian Centre for Health Economics, revised Jan 2015.
    6. 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.
    7. Gregory, Christian A. & Deb, Partha, 2015. "Does SNAP improve your health?," Food Policy, Elsevier, vol. 50(C), pages 11-19.
    8. 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.
    9. repec:ctl:louvde:v:83:y:2017:i:2:p:245-258 is not listed on IDEAS
    10. Holger STRULIK, 2015. "A Closed-form Solution for the Health Capital Model," JODE - Journal of Demographic Economics, Cambridge University Press, vol. 81(3), pages 301-316, September.
    11. Holger STRULIK, 2017. "The Health Hump," JODE - Journal of Demographic Economics, Cambridge University Press, vol. 83(2), pages 245-258, June.
    12. 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.
    13. 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.
    14. Titus Galama, 2011. "A Contribution to Health Capital Theory," Working Papers WR-831, RAND Corporation.

    More about this item


    Health; Demand for health; Health capital; Medical care; Labor;

    JEL classification:

    • I10 - Health, Education, and Welfare - - Health - - - General
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • J00 - Labor and Demographic Economics - - General - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity


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