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Grossman's missing health threshold
Journal of Health Economics (2011)
  • Titus Galama, Rand Corporation
  • Arie Kapteyn, Rand Corporation

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.

Publication Date
Summer July, 2011
Citation Information
Titus Galama and Arie Kapteyn. "Grossman's missing health threshold" Journal of Health Economics Vol. 30 Iss. 5 (2011)
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