The Health Economics journal publishes the Michael Grossman editorial related to the 50th anniversary of the publication of the demand for health model in “On the Concept of Health Capital and the Demand for Health,” Journal of Political Economy 80(2): 223–255, and in The Demand for Health: A Theoretical and Empirical Investigation, NBER Occasional Paper 119 New York: Columbia University Press for the NBER.
The editorial focuses on the history of the model and its impacts on the field of health economics.
Editorial: The demand for health turns 50: Reflections Michael Grossman
Michael Grossman and the Demand for Health Model
The Demand for Health introduced a new theoretical model for determining the health status of the population. His work uniquely synthesized economic and public health knowledge and has catalyzed a vastly influential body of health economics literature.The demand for health is somewhat more complicated than the demand for a typical product. Here, the individual demands health and not health care. The demand for health care is, therefore, a derived demand.
The central idea behind Grossman’s model of demand for health is how age, education, health status, income etc. affect the production of health through the demand for health capital. Michael Grossman defined health both as a consumption good as well as a production good. He provided two reasons behind this; one health is consumed directly i.e. people are happier when they are healthier. Second, health is an investment i.e. good health permits people to do other things. Thus, the individual is both the consumer and the producer of health.
This model introduces the idea of investing in human capital (health and education) to improve outcomes in both the market (work) and non-market (household) sectors. The goal is to improve the earnings. Health is characterized as a capital good because it can be seen as lasting over time periods and depreciating at a non-constant rate.
Grossman bases his approach on Gary S. Becker's household production function model and his theory of investment in human capital. Consumers demand health, which can include illness-free days in a given year or life expectancy, and then produce it through the input of medical care services, diet, other market goods and services, and time.
Grossman also treats health and knowledge as equal parts of the durable stock of human capital. Consumers therefore have an incentive to invest in health to increase their earnings in the future.
Grossman examines complementarities between health capital and other forms of human capital, the most important of which is knowledge capital earned through schooling and its effect on the efficiency of production.
He concludes that the rate of return on investing in health by increasing education may exceed the rate of return on investing in health through greater medical care. Higher income may not lead to better health outcomes, as wealth enables the consumption of goods and services with adverse health effects.
photo Jordi Soldevila. Homenatge a Toni Catany. Ampolles silencioses
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