Abstract
Grossman's health investment model has been one of the most important developments in health economics. However, the model's derived demand function for medical care predicts the demand for medical care to increase if the individual's health status increases. Yet, empirical studies indicate the opposite relationship. Therefore, this study improves the informative value of the health investment model by introducing a reworked Grossman model, which assumes a more realistic Cobb-Douglas health investment function with decreasing returns to scale. Because we introduced uncertainty surrounding individual's health status the resulting dynamic utility maximization problem is tackled by optimal stochastic control theory.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
