The canonical model of the demand for health and health investment (e.g., medical care) arises from Grossman (1972a, 1972b, 2000) and theoretical extensions and competing economic models are still relatively few. In Grossman’s human capital framework individuals demand medical care (e.g., invest time, consume medical goods and services) for the consumption benefits (health provides utility) as well as production benefits (healthy individuals have greater earnings) that good health provides. The model provides a conceptual framework for interpretation of the demand for health and medical care in relation to individual’s resource constraints, preferences and consumption needs over the life cycle.
Grossmans’ model has been one of the most important …show more content…
Income Y(Ht) is assumed to be increasing in health Ht as healthy individuals are more productive and earn higher wages (Currie and Madrian, 1999; Contoyannis and Rice, 2001).Goods and services Xt purchased in the market and own time inputs τCt are used in the production of consumption Ct. Similarly medical goods and services mt and own time inputs τIt are used in the production of health investment It. The efficiencies of production are assumed to be a function of the consumer’s stock of knowledge E (an individual’s human capital exclusive of health capital [e.g. education] as the more educated may be more efficient at investing in health (Grossman 2000): It = I[mt, τIt; …show more content…
The optimal control problem presented so far is formulated for a fixed length of life T (Seierstad and Sydsaeter, 1977, 1987; Kirk, 1970). To allow for differential mortality one needs to introduce an additional condition to the optimal control problem to optimize over all possible lengths of life T (Ehrlich and Chuma, 1990). One way to achieve this is by first solving the optimal control problem conditional on length of life T ( for a fixed exogenous T), inserting the optimal solutions for consumption C∗t and health H * t (denoted by ∗) into the “indirect utility
Grossmans’ model has been one of the most important …show more content…
Income Y(Ht) is assumed to be increasing in health Ht as healthy individuals are more productive and earn higher wages (Currie and Madrian, 1999; Contoyannis and Rice, 2001).Goods and services Xt purchased in the market and own time inputs τCt are used in the production of consumption Ct. Similarly medical goods and services mt and own time inputs τIt are used in the production of health investment It. The efficiencies of production are assumed to be a function of the consumer’s stock of knowledge E (an individual’s human capital exclusive of health capital [e.g. education] as the more educated may be more efficient at investing in health (Grossman 2000): It = I[mt, τIt; …show more content…
The optimal control problem presented so far is formulated for a fixed length of life T (Seierstad and Sydsaeter, 1977, 1987; Kirk, 1970). To allow for differential mortality one needs to introduce an additional condition to the optimal control problem to optimize over all possible lengths of life T (Ehrlich and Chuma, 1990). One way to achieve this is by first solving the optimal control problem conditional on length of life T ( for a fixed exogenous T), inserting the optimal solutions for consumption C∗t and health H * t (denoted by ∗) into the “indirect utility