A Contribution to Health Capital Theory

Titus Galama, RAND Corporation

Abstract

I present a theory of the demand for health, health investment and longevity, building on the human capital framework for health and addressing limitations of existing models. I predict a negative correlation between health investment and health, that the health of wealthy and educated individuals declines more slowly and that they live longer, that current health status is a function of the initial level of health and the histories of prior health investments made, that health investment rapidly increases near the end of life and that length of life is finite as a result of limited life-time resources (the budget constraint). I derive a structural relation between health and health investment (e.g., medical care) that is suitable for empirical testing.