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Grossman’s Missing Health Threshold

Author

Listed:
  • 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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    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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