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

Author

Listed:
  • Katerina Koka
  • Audrey Laporte
  • Brian Ferguson

Abstract

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.

Suggested Citation

  • Katerina Koka & Audrey Laporte & Brian Ferguson, 2014. "Theoretical Simulation in Health Economics: An application to Grossman's Model of Investment in Health Capital," Working Papers 140010, Canadian Centre for Health Economics.
  • Handle: RePEc:cch:wpaper:140010
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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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    References listed on IDEAS

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    1. Michael Grossman, 1972. "The Demand for Health: A Theoretical and Empirical Investigation," NBER Books, National Bureau of Economic Research, Inc, number gros72-1, January.
    2. 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.
    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 761-782, August.
    4. Forster, Bruce A, 1989. "Optimal Health Investment Strategies," Bulletin of Economic Research, Wiley Blackwell, vol. 41(1), pages 45-57, January.
    5. 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.
    6. Eisenring, Christoph, 1999. "Comparative dynamics in a health investment model," Journal of Health Economics, Elsevier, vol. 18(5), pages 653-658, October.
    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. Ried, Walter, 1998. "Comparative dynamic analysis of the full Grossman model," Journal of Health Economics, Elsevier, vol. 17(4), pages 383-425, August.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Jared C. Carbone & Snorre Kverndokk, 2017. "Individual Investments in Education and Health: Policy Responses and Interactions," Advances in Health Economics and Health Services Research,in: Human Capital and Health Behavior, volume 25, pages 33-83 Emerald Publishing Ltd.
    2. 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.

    More about this item

    Keywords

    Theoretical simulation; grossman model; health capital;

    JEL classification:

    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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