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Theoretical Simulation in Health Economics: An application to Grossman's Model of Investment in Health Capital

  • Katerina Koka
  • Audrey Laporte
  • Brian Ferguson

In this paper we argue on the merits of theoretical simulation, a widely used technique in other areas of theoretical economics, to extending the phase diagram analysis of the Grossman's 1972 model of investment in health capital. We argue that theoretical simulations are particularly useful when considering problems with multiple state variables. To illustrate, we perform simulations with varying assumptions of health depreciation rates and conditional survival probabilities and generate time-plots for the evolution of health capital and health investments over individual finite lifetimes.

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File URL: http://www.canadiancentreforhealtheconomics.ca/wp-content/uploads/2014/06/Koka-et-al.pdf
File Function: First version, 2014
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Paper provided by Canadian Centre for Health Economics in its series Working Papers with number 140010.

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Length: 24 pages
Date of creation: Jun 2014
Date of revision:
Publication status: Published Online, June 2014
Handle: RePEc:cch:wpaper:140010
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Web page: http://www.canadiancentreforhealtheconomics.ca
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  1. Forster, Bruce A, 1989. "Optimal Health Investment Strategies," Bulletin of Economic Research, Wiley Blackwell, vol. 41(1), pages 45-57, January.
  2. Michael Grossman, 1972. "The Demand for Health: A Theoretical and Empirical Investigation," NBER Books, National Bureau of Economic Research, Inc, number gros72-1, August.
  3. Ehrlich, Isaac & Chuma, Hiroyuki, 1990. "A Model of the Demand for Longevity and the Value of Life Extension," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 761-82, August.
  4. Forster, Martin, 2001. "The meaning of death: some simulations of a model of healthy and unhealthy consumption," Journal of Health Economics, Elsevier, vol. 20(4), pages 613-638, July.
  5. Carbone, Jared C. & Kverndokk, Snorre, 2014. "Individual investments in education and health," HERO On line Working Paper Series 2014:1, Oslo University, Health Economics Research Programme.
  6. Ried, Walter, 1998. "Comparative dynamic analysis of the full Grossman model," Journal of Health Economics, Elsevier, vol. 17(4), pages 383-425, August.
  7. Oniki, Hajime, 1973. "Comparative dynamics (sensitivity analysis) in optimal control theory," Journal of Economic Theory, Elsevier, vol. 6(3), pages 265-283, June.
  8. Eisenring, Christoph, 1999. "Comparative dynamics in a health investment model," Journal of Health Economics, Elsevier, vol. 18(5), pages 653-658, October.
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