Uncertainty and health care spending by the poor: The health capital model revisited (original) (raw)

Uncertainty, inequalities in health and the demand for health

Journal of Health Economics, 1987

As it has become increasingly recognized that inequalities in health stem more from inequalities in wealth, rather than from inequalities in access to medical care, economists have begun to suggest that Michael Grossman's model of the demand for health may be a useful analytical framework for investigating the issue. Ironically, the more popular of Grossman's two submodels-the 'pure-investment' modelprovides little by way of insights into the relationship between inequalities in wealth and inequalities in health. In common with other pure investment models of human capital formation, Grossman's model predicts that an individual's health investment decisions at each stage in the lifecycle will be independent of his initial wealth. This paper shows that if uncertainty is introduced into the model, this result no longer holds. It also shows that if individuals display decreasing absolute risk aversion, wealthier individuals will invest more in health capital than individuals who start life with relatively small stocks of financial capital. 'This point is emphasized by Grossman (1972a, p. 37). 'See, for example, Deaton and Muellbauer (1980). 'Another way of introducing the possibility that non-human wealth may influence M* wouJd be to assume imperfect markets, with r and/or P,,, being decreasing functions of MI. Then the marginal cost of health investment would be decreasing in A, so that those with higher values of A would ceteris paribus choose higher values of &.

The effect of uncertainty on the demand for medical care, health capital and wealth

Journal of Health Economics, 1998

We analyze the effect of the uncertainty of the incidence of illness on the demand for medical care and on the accumulation of health capital and wealth over the retirement years. We use a simplified version of a dynamic Grossman household production model to characterize patterns of an individual's precautionary behavior. Elderly individuals respond to uncertainty by smoothing their expected utility over time by making specific patterns of purchases of medical care and consumption. We examine these patterns for individuals with different degrees of risk aversion. q 1998 Elsevier Science B.V.

Uncertainty and the demand for medical care

Journal of Health Economics, 1990

This paper provides an analysis of the effects of uncertainty on the demand for medical care using a simplified version of Grossman's human capital model of the demand for health. Two types of uncertainty are analysed: the uncertainty surrounding the incidence of illness and the uncertainty surrounding the eNectiveness of medical care. In the first the consumer's basic level of health is assumed to be a random variable; in the second the effectiveness of medical care is assumed to be random. Comparative static results are reported indicating the effects on the demand for medical care of both increases in the means of these distributions and meanpreserving spreads of the distributions. 0167-6296,/90/503.50 0 199G-Elsevier Science Publishers B.V. (North-Holland) 'Van Doorslaer (1987) provides a useful survey of the literature to date. *Our model is based on the simplified version of Grossman's (1972a, b) 'pure consumption' model of the demand for health outlined in Wagstaff (1986a). 'Our formulation of the health production function is similar to the earnings function used by Levhari and Weiss (1974) in their human capital model.

Uncertainty, the Demand for Health Care, and Precautionary Savings

SSRN Electronic Journal, 2000

We analyze the demand for medical care and precautionary saving in a framework with uncertainty surrounding the incidence of illness and the effectiveness of medical treatments and a representation of preferences that disentangles ordinal preferences, risk preferences, and intertemporal smoothing preferences. We consider a "pure consumption" model with exogenous health capital and a model where young consumers invest in preventive care to increase their future health stock. In both cases, we establish conditions for the different sources for uncertainty to induce precautionary saving and we evaluate how uncertainty affects the demand of curative and preventive care. We also show that given the self-insurance function of preventive care, consumers' welfare may increase with the degree of uncertainty surrounding health care effectiveness.

Health Care Investment: The Case of Multiple Sources of Risk

Asia-Pacific Financial Markets

This paper analyses the effect of a bivariate risk on the optimal expenses in health care and gives conditions under which any change in the bivariate risk with respect to the \left( {s_{1} ,s_{2} } \right) -$$s1,s2-increasing concave order decreases the expenses in health care. Increasing risk increases the demand for health care for risk-averse and prudent individuals in the multivariate sense. Positive (negative) dependence increases (decreases) expenses in health care. Increasing the correlation produces the same results. Furthermore, the uncertainty surrounding the effectiveness of medical treatments amplifies the effect of any change in wealth and health risks. We also present some policy implications.

A NOTE ON A SIMPLE MODEL OF HEALTH INVESTMENT

Bulletin of Economic Research, 1986

One of the major theoretical innovations in the study of the demand for health and health care has been the 'human capital' approach as applied in the health field by . The Grossman approach has proved a vigorous stimulus to further research both theoretical and empirical. Unfortunately, the richness of these results is often somewhat limited by the technical complexity of the model and of the related literature.

A Contribution to Health Capital Theory

I present a theory of the demand for health, health investment and longevity, building on the human capital framework for health and addressing limitations of existing models. I predict a negative correlation between health investment and health, that the health of wealthy and educated individuals declines more slowly and that they live longer, that current health status is a function of the initial level of health and the histories of prior health investments made, that health investment rapidly increases near the end of life and that length of life is finite as a result of limited life-time resources (the budget constraint). I derive a structural relation between health and health investment (e.g., medical care) that is suitable for empirical testing.

The effect of medical care on health capital

METU Studies in Development, 2018

This paper analyzes the effect of medical care on the stock of health capital by estimating the health investment production function. An ordered probit model for the stock of health with instrumental variables is estimated using the Two-Stage Residual Inclusion method. We argue that risk tolerance and the opportunity cost of time are suitable instruments for the change in medical care consumption. In contrast to majority of the empirical work, which does not uncover that medical care has a positive effect on the stock of health, the results suggest that physician visits significantly increases the probability of excellent health (or decreases the probability of poor health), in accordance with Grossman’s (1972a) demand for health capital model.

The demand for health with uncertainty and insurance

Journal of Health Economics, 1998

This paper develops Michael Grossman's demand-for-health model by letting the depreciation rate depend upon the level of health, by letting the incidence and size of illness be uncertain and by investigating how the individual's demand for health would be affected by the introduction of insurance. Beside the more theoretical results, there are also some results with important policy implications. When formulating the hypothetical scenario in Ž . willingness to pay WTP studies it is important whether the individual believes that the level of health is uncertain or not. The existence of insurance could also affect the stated WTP amount. Taking this into account could therefore explain some of the differences in the WTP for seemingly identical health care programs in different countries or different areas in the same country. q 1998 Elsevier Science B.V.