Abstract

http://ssrn.com/abstract=2046629
 


 



Empirical Evidence for Decreasing Returns to Scale in a Health Capital Model


Titus J. Galama


USC Center for Economic and Social Research; The RAND Corporation

Patrick Hullegie


VU University Amsterdam - Department of Economics

Erik Meijer


University of Southern California; RAND Corporation

Sarah M. Outcault


RAND Corporation

February 23, 2012

RAND Working Paper Series WR-928

Abstract:     
The authors estimate a health investment equation, derived from a health capital model that is an extension of the well-known Grossman model. Of particular interest is whether the health production function has constant returns to scale, as in the standard Grossman model, or decreasing returns to scale, as in the Ehrlich-Chuma model and extensions thereof. The model with decreasing returns to scale has a number of theoretically and empirically desirable characteristics that the constant returns model does not have. Although their empirical equation does not point-identify the decreasing returns to scale curvature parameter, it does allow them to test for constant versus decreasing returns to scale. The results are suggestive of decreasing returns and in line with prior estimates from the literature. But when they attempt to control for the endogeneity of health by using instrumental variables, the results become inconclusive. This brings into question the robustness of prior estimates in this literature.

Number of Pages in PDF File: 34

Keywords: health investment, lifecycle model, Grossman model, optimal control

JEL Classification: J12, J24, D91

working papers series


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Date posted: April 26, 2012  

Suggested Citation

Galama, Titus J. and Hullegie, Patrick and Meijer, Erik and Outcault, Sarah M., Empirical Evidence for Decreasing Returns to Scale in a Health Capital Model (February 23, 2012). RAND Working Paper Series WR-928. Available at SSRN: http://ssrn.com/abstract=2046629 or http://dx.doi.org/10.2139/ssrn.2046629

Contact Information

Titus J. Galama (Contact Author)
USC Center for Economic and Social Research ( email )
Playa Vista, CA
United States
+310 430 6358 (Phone)
The RAND Corporation ( email )
1776 Main Street
P.O. Box 2138
Santa Monica, CA 90407-2138
United States
Patrick Hullegie
VU University Amsterdam - Department of Economics ( email )
De Boelelaan 1105
1081 HV Amsterdam
Netherlands
Erik Meijer
University of Southern California ( email )
635 Downey Way
Los Angeles, CA 90089-3332
United States
RAND Corporation ( email )
1776 Main Street
P.O. Box 2138
Santa Monica, CA 90407-2138
United States
Sarah M. Outcault
RAND Corporation ( email )
1776 Main Street
P.O. Box 2138
Santa Monica, CA 90407-2138
United States
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