Grossman's Missing Health Threshold

42 Pages Posted: 26 May 2009

See all articles by Titus J. Galama

Titus J. Galama

USC Center for Economic and Social Research

Arie Kapteyn

Dornsife Center for Economic and Social Research - University of Southern California; IZA Institute of Labor Economics

Date Written: May 5, 2009

Abstract

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

Galama, Titus J. and Kapteyn, Arie, Grossman's Missing Health Threshold (May 5, 2009). RAND Labor and Population Working Paper No. WR-684, Available at SSRN: https://ssrn.com/abstract=1409823 or http://dx.doi.org/10.2139/ssrn.1409823

Titus J. Galama (Contact Author)

USC Center for Economic and Social Research ( email )

Playa Vista, CA
United States
+310 430 6358 (Phone)

Arie Kapteyn

Dornsife Center for Economic and Social Research - University of Southern California ( email )

635 Downey Way
Los Angeles, CA 90089-3332
United States
310-448-5383 (Phone)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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