Page "Health economics" Paragraph 22

Michael Grossman's 1972 model of health production has been extremely influential in this field of study and has several unique elements that make it notable.

Grossman's model views each individual as both a producer and a consumer of health.

Health is treated as a stock which degrades over time in the absence of " investments " in health, so that health is viewed as a sort of capital.

The model acknowledges that health is both a consumption good that yields direct satisfaction and utility, and an investment good, which yields satisfaction to consumers indirectly through increased productivity, fewer sick days, and higher wages.

Investment in health is costly as consumers must trade off time and resources devoted to health, such as exercising at a local gym, against other goals.

These factors are used to determine the optimal level of health that an individual will demand.

The model makes predictions over the effects of changes in prices of health care and other goods, labour market outcomes such as employment and wages, and technological changes.

These predictions and other predictions from models extending Grossman's 1972 paper form the basis of much of the econometric research conducted by health economists.