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A Contribution to Health-Capital Theory

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  • Titus Galama

    (University of Southern California)

Abstract

The Grossman model is the canonical theory of the demand for health and health investment. This paper provides strong support for the model's canonical status. Yet several authors have identi?ed at least four signi?cant limitations to the literature spawned by Grossman's seminal 1972 papers. I show that these criticisms are not the result of a ?awed model but of an unfortunate and unnecessary choice for the functional form (linear in investment) of the health-production process, and of an incorrect interpretation of the equilibrium condition for health. I ?nd that a generalized Grossman model, with decreasing returns in investment and endogenous longevity, addresses the limitations, and provides a remarkably successful foundation for understanding decisions regarding health.

Suggested Citation

  • Titus Galama, 2015. "A Contribution to Health-Capital Theory," Working Papers 2015-008, Human Capital and Economic Opportunity Working Group.
    • Handle: RePEc:hka:wpaper:2015-008
    Note: HI
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    References listed on IDEAS

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    More about this item

    Keywords

    socioeconomic status; Health; demand for health; human capital; health behavior;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I10 - Health, Education, and Welfare - - Health - - - General
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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