Empirical evidence for decreasing returns to scale in a health capital model

Titus Galama, P. Hullegie, Erik Meijer and S. Outcault

Health, Econometrics and Data Group (HEDG) Working Papers from HEDG, c/o Department of Economics, University of York

Abstract: We estimate a health investment equation, derived from a health capital model that is an extension of the well-known Grossman model. Of particular interest is whether the health production function has constant returns to scale, as in the standard Grossman model, or decreasing returns to scale, as in the Ehrlich-Chuma model and extensions thereof. The model with decreasing returns to scale has a number of theoretically and empirically desirable characteristics that the constant returns model does not have. Although our empirical equation does not point-identify the decreasing returns to scale curvature parameter, it does allow us to test for constant versus decreasing returns to scale. The results are suggestive of decreasing returns and in line with prior estimates from the literature. But when we attempt to control for the endogeneity of health by using instrumental variables, the results become inconclusive. This brings into question the robustness of prior estimates in this literature.

Keywords: health investment; lifecycle model; Grossman model; optimal control (search for similar items in EconPapers)
JEL-codes: D91 I12 J24 (search for similar items in EconPapers)
Date: 2012-03
New Economics Papers: this item is included in nep-hea
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Citations: View citations in EconPapers (24)

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Related works:
Journal Article: IS THERE EMPIRICAL EVIDENCE FOR DECREASING RETURNS TO SCALE IN A HEALTH CAPITAL MODEL? (2012)
Working Paper: Empirical Evidence for Decreasing Returns to Scale in a Health Capital Model (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:yor:hectdg:12/05

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