Grossman's Missing Health Threshold
42 Pages Posted: 26 May 2009
Date Written: May 5, 2009
The authors 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. Their generalized solution addresses a significant criticism: the model’s prediction that health and medical care are positively related is consistently rejected by the data. They suggest structural and reduced form equations to test their generalized solution and contrast the predictions of the model with the empirical literature.
Keywords: health, demand for health, health care, medical care, labor
JEL Classification: I10, I12, J00, J24
Suggested Citation: Suggested Citation