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Grossman’s Missing Health Threshold

  • Titus J. Galama

    (RAND Corporation)

  • Arie Kapteyn

    (RAND Corporation)

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.

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File URL: http://www.ucd.ie/geary/static/publications/workingpapers/gearywp200947.pdf
File Function: First version, 2009
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Paper provided by Geary Institute, University College Dublin in its series Working Papers with number 200947.

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Length: 41 pages
Date of creation: 16 Dec 2009
Date of revision:
Handle: RePEc:ucd:wpaper:200947
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  2. 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, 01.
  3. Grossman, Michael, 2000. "The human capital model," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 7, pages 347-408 Elsevier.
  4. Muurinen, Jaana-Marja & Le Grand, Julian, 1985. "The economic analysis of inequalities in health," Social Science & Medicine, Elsevier, vol. 20(10), pages 1029-1035, January.
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  6. Gerdtham, Ulf-G. & Johannesson, Magnus, 1999. "New estimates of the demand for health: results based on a categorical health measure and Swedish micro data," Social Science & Medicine, Elsevier, vol. 49(10), pages 1325-1332, November.
  7. Ried, Walter, 1998. "Comparative dynamic analysis of the full Grossman model," Journal of Health Economics, Elsevier, vol. 17(4), pages 383-425, August.
  8. 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.
  9. Wolfe, John R, 1985. "A Model of Declining Health and Retirement," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1258-67, December.
  10. Hans van Kippersluis & Owen O'Donnell & Eddy van Doorslaer & Tom Van Ourti, 2009. "Socioeconomic Differences in Health over the Life Cycle in an Egalitarian Country," Tinbergen Institute Discussion Papers 09-006/3, Tinbergen Institute.
  11. van Kippersluis, Hans & Van Ourti, Tom & O'Donnell, Owen & van Doorslaer, Eddy, 2009. "Health and income across the life cycle and generations in Europe," Journal of Health Economics, Elsevier, vol. 28(4), pages 818-830, July.
  12. Wagstaff, Adam, 1986. "The demand for health : Some new empirical evidence," Journal of Health Economics, Elsevier, vol. 5(3), pages 195-233, September.
  13. Titus Galama & Arie Kapteyn & Raquel Fonseca & Pierre-Carl Michaud, 2008. "Grossman's Health Threshold and Retirement," Working Papers 658, RAND Corporation Publications Department.
  14. James P. Smith, 2004. "Unravelling the SES health connection," IFS Working Papers W04/02, Institute for Fiscal Studies.
  15. Cropper, M L, 1977. "Health, Investment in Health, and Occupational Choice," Journal of Political Economy, University of Chicago Press, vol. 85(6), pages 1273-94, December.
  16. Hans van Kippersluis & Owen O'Donnell & Eddy van Doorslaer & Tom Van Ourti, 2009. "Socioeconomic Differences in Health over the Life Cycle in an Egalitarian Country," Tinbergen Institute Discussion Papers 09-006/3, Tinbergen Institute.
  17. Michael Grossman, 1972. "The Demand for Health: A Theoretical and Empirical Investigation," NBER Books, National Bureau of Economic Research, Inc, number gros72-1, October.
  18. Anne Case & Angus S. Deaton, 2005. "Broken Down by Work and Sex: How Our Health Declines," NBER Chapters, in: Analyses in the Economics of Aging, pages 185-212 National Bureau of Economic Research, Inc.
  19. Cropper, M L, 1981. "Measuring the Benefits from Reduced Morbidity," American Economic Review, American Economic Association, vol. 71(2), pages 235-40, May.
  20. Dana P. Goldman & James P. Smith, 2004. "Can Patient Self-Management Help Explain the SES Health Gradient?," HEW 0403004, EconWPA.
  21. James P. Smith, 1999. "Healthy Bodies and Thick Wallets: The Dual Relation between Health and Economic Status," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 145-166, Spring.
  22. 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 223-55, March-Apr.
  23. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
  24. James P. Smith, 2007. "The Impact of Socioeconomic Status on Health over the Life-Course," Journal of Human Resources, University of Wisconsin Press, vol. 42(4).
  25. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, October.
  26. Van de Ven, Wynand P. M. M. & Van Der Gaag, Jacques, 1982. "Health as an unobservable : A MIMIC-model of demand for health care," Journal of Health Economics, Elsevier, vol. 1(2), pages 157-183, August.
  27. Dardanoni, Valentino & Wagstaff, Adam, 1987. "Uncertainty, inequalities in health and the demand for health," Journal of Health Economics, Elsevier, vol. 6(4), pages 283-290, December.
  28. Hans van Kippersluis & Tom van Ourti & Owen O'Donnell & Eddy van Doorslaer, 2008. "Health and Income across the Life Cycle and Generations in Europe," Tinbergen Institute Discussion Papers 08-009/3, Tinbergen Institute.
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