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Theoretical shortcomings of the Grossman model

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  • Hren Rok

    (Johnson & Johnson, d.o.o., Šmartinska 53, 1000 Ljubljana, Slovenia)

Abstract

This article contains a review of the seminal Grossman model from a perspective of assumptions and simplifications, which were necessary to make the model tractable. The Grossman model emphasises health as a fundamental commodity, which implies that the demand for healthcare is a derived demand; in the model, individuals are both consumers and producers of health. The model predicts that an individual would invest in health until the marginal benefit of health equals its marginal cost; this equilibrium demand for health entails that the length of an individual's life would be determined endogenously. This review also discusses the model's refinements and extensions that have relaxed some of the constraints of the original model. In spite of its shortcomings, the Grossman model remains — even after 40 years — one of the few models in the realm of health economics, which attempts to conceptualise the complex demand for health and healthcare both theoretically and empirically.

Suggested Citation

  • Hren Rok, 2012. "Theoretical shortcomings of the Grossman model," Bulletin: Economics, Organisation and Informatics in Healthcare, Sciendo, vol. 28(1), pages 63-75, January.
    • Handle: RePEc:vrs:bueoih:v:28:y:2012:i:1:p:63-75:n:6
    DOI: 10.2478/v10221-011-0020-5
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    References listed on IDEAS

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