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On Medical Progress and Health Care Demand: A Ces Perspective Using the Grossman Model of Health Status

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  • Alberto Batinti

Abstract

I propose an application of the pure‐consumption version of the Grossman model of health care demand, where utility depends on consumption and health status and health status on medical care and health technology. I derive the conditions under which an improvement in health care technology leads to an increase/decrease in health care consumption. In particular, I show how the direction of the effect depends on the relationship between the constant elasticity of substitution parameters of the utility and health production functions. I find that, under the constancy assumption, the ratio of the two elasticity of substitution parameters determines the direction of a technological change on health care demand. On the other hand, the technology share parameter in the health production function contributes to the size but not to the direction of the technological effect. I finally explore how the ratio of the elasticity of substitution parameters work in measurement and practice and discuss how future research may use the theoretical insight provided here. Copyright © 2014 John Wiley & Sons, Ltd.

Suggested Citation

  • Alberto Batinti, 2015. "On Medical Progress and Health Care Demand: A Ces Perspective Using the Grossman Model of Health Status," Health Economics, John Wiley & Sons, Ltd., vol. 24(12), pages 1632-1637, December.
  • Handle: RePEc:wly:hlthec:v:24:y:2015:i:12:p:1632-1637
    DOI: 10.1002/hec.3109
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    1. Amy Finkelstein & Erzo F. P. Luttmer & Matthew J. Notowidigdo, 2013. "What Good Is Wealth Without Health? The Effect Of Health On The Marginal Utility Of Consumption," Journal of the European Economic Association, European Economic Association, vol. 11, pages 221-258, January.
    2. Mark Pauly, 1980. "Appendix to "Doctors and Their Workshops: Economic Models of Physician Behavior"," NBER Chapters, in: Doctors and Their Workshops: Economic Models of Physician Behavior, pages 119-122, National Bureau of Economic Research, Inc.
    3. Dardanoni, Valentino & Wagstaff, Adam, 1990. "Uncertainty and the demand for medical care," Journal of Health Economics, Elsevier, vol. 9(1), pages 23-38, June.
    4. Mark Pauly, 1980. "Doctors and Their Workshops: Economic Models of Physician Behavior," NBER Books, National Bureau of Economic Research, Inc, number paul80-1, January.
    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.
    6. Frank R. Lichtenberg & Suchin Virabhak, 2007. "Pharmaceutical-embodied technical progress, longevity, and quality of life: drugs as 'Equipment for Your Health'," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(4-5), pages 371-392.
    7. Borger, Christine & Rutherford, Thomas F. & Won, Gregory Y., 2008. "Projecting long term medical spending growth," Journal of Health Economics, Elsevier, vol. 27(1), pages 69-88, January.
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