A Revisit to the Grossman Model with Endogenous Health Depreciation

Rong Fu, Haruko Noguchi and Koichi Suga ()
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Koichi Suga: School of Political Science and Economics, Waseda University

Economics Bulletin, 2016, vol. 36, issue 4, 2405-2412

Abstract: We extend the Grossman health capital model by relaxing the exogenous health depreciation rate to model the direct and indirect channels through which people improve their health through health investment. We confirm that the marginal cost of health supply decreases when the depreciation rate is an endogenous function of health investment and that the marginally reduced cost is greater for people in later life stages. We also find that the indirect channel—depreciation rate reduction—is more effective for people in good health; however, the direct channel—the classical Grossman model—is more powerful for those in poor health. Our findings provide a more comprehensive view of the procedure for optimal health determination.

Keywords: Grossman model; endogenous depreciation rate; health capital (search for similar items in EconPapers)
JEL-codes: I1 (search for similar items in EconPapers)
Date: 2016-12-10
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Citations: View citations in EconPapers (1)

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