Health and Health Care Demand

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Health and Health Care Demand
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Grossman Model

• Investment in health as a form of human capital
  the Grossman model

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Age (Pure
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Grossman Model

• Marginal efficiency of capital (MEC)
• The wage effect

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Education
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Practice

• What happens to MEI if someone gets goes to
  college? What happens to the optimal health stock
  H? And what happens to demand for health inputs?
• What does this mean for expanding health
  insurance to less educated?

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Practice

• What happens to MEI if someone gets cancer? What
  happens to the optimal health stock H? And what
  happens to demand for health inputs?
• Using the Grossman Model what would you predict
  the differences would be between US citizens and
  A Citizen of Sub- Saharan Africa (Botswana,
  Lesotho, etc) in terms of their demand for HIV
  prevention?

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The Consumption Model

• Pure Investment model vs. Pure consumption model

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Grossman Model

• Additional factors that affect health in pure
  consumption model
• Age
• Wages
• Education

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Age

• Optimal Health stock demanded still falls with
  rise in d
• Demand for health care (investment in health)
  still rises with age.

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Health and Wealth
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Wage
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Education
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Research

• Studies using the Grossman model
• Critiques of the Model

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All Death is Suicide
Since health capital is one component of human
capital, a person inherits an initial stock of
health that depreciates with age - at an
increasing rate at least after some stage in the
life cycle - and can be increased by investment.
Death occurs when the stock falls below a certain
level, and one of the novel features of the model
is that individuals "choose" their length of life.
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Consumer Utility Theory

• Utility maximization
• Income as the Budget Constraint
• Change in Relative Prices
• Income and Substitution effects

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Consumer Utility Theory

• Utility Maximization
• Time as the Budget Constraint
• The importance of Time
• Labor Leisure trade-off

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Practice
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The Demand for Health Care

• Derived from Consumer Utility Maximization
• Price elasticity of demand for medical care
• Insert tables on price elasticity

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Elasticity

• Elasticity is a general concept that can be used
  to quantify the response in one variable when
  another variable changes.

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Price Elasticity of Demand
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Negative inputs into health production function

• Lifestyle
• Chemical dependency
• Rational Addiction

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Demand for Unhealthy Goods

• Chart on alcohol drugs, etc
• Rational Addiction
• http//en.wikipedia.org/wiki/Rational_addiction

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Time

• Time cost and time price elasticities.

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Income Elasticity

• Is medical care normal or superior good? (luxury
  good?)

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Finkelstein, A., Luttmer, E. F. P.,
Notowidigdo, M. (2008). What Good Is Wealth
Without Health? The Effect of Health on the
Marginal Utility of Consumption.Unpublished
manuscript.