Working Paper: NBER ID: w7078
Authors: Michael Grossman
Abstract: This paper contains a detailed treatment of the human capital model of the demand for health. Theoretical predictions are discussed, and theoretical extensions are reviewed. Empirical research that tests the predictions of the model or studies causality between years of formal schooling completed and good health is surveyed. The model views health as a durable capital stock that yields an output of healthy time. Individuals inherit an initial amount of this stock that depreciates with age and can be increased by investment. The household production function model of consumer behavior is employed to account for the gap between health as an output and medical care as one of many inputs into its production. In this framework the shadow price' of health depends on many variables besides the price of medical care. It is shown that the shadow price rises with age if the rate of depreciation on the stock of health rises over the life cycle and falls with education if more educated people are more efficient producers of health. An important result is that, under certain conditions, an increase in the shadow price may simultaneously reduce the quantity of health demanded and increase the quantities of health inputs demanded.
Keywords: health economics; human capital; demand for health
JEL Codes: I10; I12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| health capital (I15) | utility (L90) |
| health capital (I15) | income levels (J31) |
| increase in health capital (I15) | decrease in time lost from market and non-market activities (J29) |
| increase in health capital (I15) | monetary return on health investments (I26) |
| age (J14) | increase in shadow price of health (I14) |
| education (I29) | decrease in shadow price of health (I14) |
| increase in shadow price of health (I14) | decrease in quantity of health demanded (I12) |
| increase in shadow price of health (I14) | increase in demand for health inputs (I11) |
| health capital (I15) | economic productivity (O49) |
| health capital (I15) | consumer behavior (D19) |