Individual Decisions for Health

By Björn Lindgren | Go to book overview

5

The demand for health and health investments in Sweden 1980/81, 1988/89, and 1996/97

Kristian Bolin, Lena Jacobson, and Björn Lindgren


Background

The introduction of the demand-for-health model some 30 years ago (Grossman, 1972a, b) was a major contribution to economics, and it remains a central theoretical model for the economic analysis of individual health behaviour. It was built on traditional neoclassical capital theory, the human capital theory developed for educational investments by Becker (1964), the theory of the allocation of time (Becker, 1965), and Lancaster’s new approach to consumer theory, which draws a sharp distinction between fundamental objects of choice - ‘commodities’ - and market goods (Lancaster, 1966). In his seminal paper, Grossman (1972a) emphasized (a) that health is a durable capital stock; (b) that health capital differs from other forms of human capital in that its main impact is on the total amount of time a person can spend producing money earnings and commodities rather than on his or her wage rate; and (c) that the demand for health care must be derived from the more fundamental demand for good health.

True, the demand-for-health model, as presented in Grossman’s theoretical paper, relied by necessity on a number of simplifying assumptions, ‘all of which should be relaxed in future work’ (Grossman, 1972a, p. 247). However, the paper presented a completely new approach for the economic analysis of individual health behaviour and provided essential insights; the most important predictions being that, under certain conditions, (a) age would be negatively correlated with health capital but positively correlated with expenditures on health care; (b) the individual’s wage rate would be positively correlated both with the demand for health and with the demand for health care; and (c) education would be positively correlated with health capital but negatively correlated with expenditures on health care. The demand-for-health model explains variations in health status (besides the exogenously given initial levels of health) and health care utilization among individuals.

Theoretical extensions and modifications of the Grossman model include the introduction of uncertainty, which inter alia implies that the individual no longer knows his or her age of death with certainty (Liljas, 1998); a ‘use-related’ deterioration of health capital influenced by, inter alia, education and other exogenous variables, and a health investment efficiency parameter

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