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Grossman’s Missing Health Threshold

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  • Titus J. Galama

    (RAND Corporation)

  • Arie Kapteyn

    (RAND Corporation)

Abstract

We present a generalized solution to Grossman’s model of health capital (1972), relaxing the widely used assumption that individuals can adjust their health stock instantaneously to an “optimal” level without adjustment costs. The Grossman model then predicts the existence of a health threshold above which individuals do not demand medical care. Our generalized solution addresses a significant criticism: the model’s prediction that health and medical care are positively related is consistently rejected by the data. We suggest structural and reduced form equations to test our generalized solution and contrast the predictions of the model with the empirical literature.

Suggested Citation

  • Titus J. Galama & Arie Kapteyn, 2009. "Grossman’s Missing Health Threshold," Working Papers 200947, Geary Institute, University College Dublin.
  • Handle: RePEc:ucd:wpaper:200947
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Galama and Kapteyn: Grossman's Missing Threshold
      by Liam Delaney in Geary Behaviour Centre on 2009-12-23 08:29:00

    Citations

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    Cited by:

    1. Hullegie, P.G.J., 2012. "Essays on health and labor economics," Other publications TiSEM dcc68fc9-7af1-4ba9-8f90-6, Tilburg University, School of Economics and Management.
    2. Burggraf, Christine, 2017. "Russian demand for dietary quality: Nutrition transition, diet quality measurement, and health investment theory," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 86, number 86, September.
    3. Titus J. Galama & Patrick Hullegie & Erik Meijer & Sarah Outcault, 2012. "Is There Empirical Evidence For Decreasing Returns To Scale In A Health Capital Model?," Health Economics, John Wiley & Sons, Ltd., vol. 21(9), pages 1080-1100, September.
    4. Mazzonna, Fabrizio & Peracchi, Franco, 2012. "Ageing, cognitive abilities and retirement," European Economic Review, Elsevier, vol. 56(4), pages 691-710.
    5. Bolin, Kristian & Lindgren, Björn, 2016. "Non-monotonic health behaviours – implications for individual health-related behaviour in a demand-for-health framework," Journal of Health Economics, Elsevier, vol. 50(C), pages 9-26.
    6. Davide Dragone & Paolo Vanin, 2022. "Substitution Effects in Intertemporal Problems," American Economic Journal: Microeconomics, American Economic Association, vol. 14(3), pages 791-809, August.
    7. Clémentine Garrouste & Elsa Perdrix, 2022. "Is there a consensus on the health consequences of retirement? A literature review," Journal of Economic Surveys, Wiley Blackwell, vol. 36(4), pages 841-879, September.
    8. repec:zbw:iamost:269539 is not listed on IDEAS
    9. 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.
    10. Bolin, Kristian & Lindgren, Björn, 2014. "Non-monotonic health behaviours - implications for individual health-related behaviour in a demand-for-health framework," Working Papers in Economics 588, University of Gothenburg, Department of Economics.
    11. Titus J Galama & Hans van Kippersluis, 2019. "A Theory of Socio-economic Disparities in Health over the Life Cycle," The Economic Journal, Royal Economic Society, vol. 129(617), pages 338-374.
    12. Burggraf, Christine, 2017. "Russian demand for dietary quality: Nutrition transition, diet quality measurement, and health investment theory," Studies on the Agricultural and Food Sector in Transition Economies 269539, Institute of Agricultural Development in Transition Economies (IAMO).
    13. Gregory, Christian A. & Deb, Partha, 2015. "Does SNAP improve your health?," Food Policy, Elsevier, vol. 50(C), pages 11-19.
    14. Bolin, Kristian & Liljas, Bengt & Lindgren, Björn, 2014. "Individual technologies for health - the implications of distinguishing between the ability to produce health investments and the capacity to benefit from those investments," Working Papers in Economics 587, University of Gothenburg, Department of Economics.
    15. Lakdawalla, Darius N. & Phelps, Charles E., 2020. "Health technology assessment with risk aversion in health," Journal of Health Economics, Elsevier, vol. 72(C).
    16. Titus Galama & Arie Kapteyn & Raquel Fonseca & Pierre‐Carl Michaud, 2013. "A Health Production Model With Endogenous Retirement," Health Economics, John Wiley & Sons, Ltd., vol. 22(8), pages 883-902, August.
    17. Strulik, Holger, 2017. "The Health Hump," Journal of Demographic Economics, Cambridge University Press, vol. 83(2), pages 245-258, June.
    18. Ludovico Carrino & Karen Glaser & Mauricio Avendano, 2020. "Later retirement, job strain, and health: Evidence from the new State Pension age in the United Kingdom," Health Economics, John Wiley & Sons, Ltd., vol. 29(8), pages 891-912, August.
    19. Carrino, Ludovico & Glaser, Karen & Avendano, Mauricio, 2018. "Later Pension, Poorer Health? Evidence from the New State Pension Age in the UK," MPRA Paper 87575, University Library of Munich, Germany.
    20. Lenzen, Sabrina & Gannon, Brenda & Rose, Christiern, 2020. "A dynamic microeconomic analysis of the impact of physical activity on cognition among older people," Economics & Human Biology, Elsevier, vol. 39(C).
    21. Strulik, Holger, 2015. "A Closed-Form Solution For The Health Capital Model," Journal of Demographic Economics, Cambridge University Press, vol. 81(3), pages 301-316, September.
    22. Peter Zweifel, 2012. "The Grossman model after 40 years," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 13(6), pages 677-682, December.
    23. Titus Galama, 2011. "A Contribution to Health Capital Theory," Working Papers WR-831, RAND Corporation.

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    More about this item

    Keywords

    health; demand for health; health capital; medical care; labor;
    All these keywords.

    JEL classification:

    • I10 - Health, Education, and Welfare - - Health - - - General
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • J00 - Labor and Demographic Economics - - General - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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