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Unpublished Paper
Grossman’s Missing Health Threshold
RAND Working Paper (2009)
  • Titus Galama, Rand Corporation
  • Arie Kapteyn, Rand Corporation
Abstract

We 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. Our generalized solution addresses a significant criticism: the model’s prediction that health and medical care are positively related is consistently rejected by the data. We suggest structural and reduced form equations to test our generalized solution and contrast the predictions of the model with the empirical literature.

Keywords
  • health,
  • demand for health,
  • health capital,
  • medical care,
  • labor
Disciplines
Publication Date
May, 2009
Citation Information
Titus Galama and Arie Kapteyn. "Grossman’s Missing Health Threshold" RAND Working Paper (2009)
Available at: http://works.bepress.com/titus_galama/3/