title: Grossman's missing health threshold.
abstract: We present a generalized solution to Grossman's model of health capital (1972), relaxing the widely used assumption that individuals can adjust their health stock instantaneously to an "optimal" level without adjustment costs. The Grossman model then predicts the existence of a health threshold above which individuals do not demand medical care. Our generalized solution addresses a significant criticism: the model's prediction that health and medical care are positively related is consistently rejected by the data. We suggest structural- and reduced-form equations to test our generalized solution and contrast the predictions of the model with the empirical literature.
authors.affiliation: RAND Corporation, 1776 Main Street, P.O. Box 2138, Santa Monica, CA 90407-2138, USA. galama@rand.org
authors.forename: Titus
authors.initials: T
authors.lastname: Galama
authors.forename: Arie
authors.initials: A
authors.lastname: Kapteyn
mesh_terms: D036262:Empirical Research; D006301:Health Services Needs and Demand / Q000706:statistics & numerical data*; D006304:Health Status; D006801:Humans; D018803:Models, Economic