Health Capital Theory

710 Words3 Pages
Health Capital Theory The canonical model of the demand for health and health investment (e.g., medical care) arises from the work of (Grossman, 1972, Grossman, 2000) .Thereafter, and theoretical extensions and closer economic models are still relatively few. In Grossman’s human capital framework individuals demand medical care for the consumption and production benefits The model provides a conceptual framework for interpretation of the demand for health and medical care in relation to individual’s resource constraints, preferences and consumption needs over their life cycle. Grossman’s model has been one of the most important contributions of economics to the study of health behaviour. It has provided insights into a various phenomena related…show more content…
Also, demand for health is derived from the demand for utility i.e healthy days in which to participate in leisure and work (farm). Individual farmers are not passive consumers of health but active producers who spend money and time on the production of their health asset can be seen as lasting over time period, it depreciates perhaps at a non-constant rate and can therefore be analysed as a capital good. Grossman’s basic formulation (Grossman, 1972, Grossman, 2000) for demand for health and health investment in discrete time .The demand for medical care is a derived demand: individuals demand “good health”, not the consumption of medical care. Using discrete time optimal control (Sydsæter et al., 2005), the problem can be stated as follows. Suppose individuals maximize their life-time utility function such that: βk)…show more content…
Individuals live for T periods and die at the end of period T −1. Length of life T (Grossman, 1972) is determined by a minimum health level Hmin. If health falls below this level Ht ≤ Hmin an individual dies (HT≡ Hmin).Health can be improved through investment in health It and deteriorates at the biological aging rate dt. The relation between the input, health investment (I t ), and the output, health improvement ( f ) , is governed by the health production function f (•). The health production function f (•) is assumed to obey the law of diminishing marginal returns in health investment. For simplicity of discussion the use the following simple functional form is necessary: f(It) = Iαt ,....................................................................................................(2.5.5
Open Document