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The demand for health after a decade
Journal of Health Economics 1 (1982) l-3. North-Holland Publishing Company
THE DEMAND FOR HEALTH AFTER A DECADE
Michael GROSSMAN City University of New York, New York,NY 10036, USA National Bureau of Economic Research, Cambridge, MA 02138, USA
Jaana-Maja Muurinen’s paper is the most recent in a series of theoretical and empirical extensions and applications of the framework for studying the demand for health and medical care that I outlined in my 1972 monograph. Charles Phelps and Maureen Cropper have introduced uncertainty into my basic model. Isaac Ehrlich has used optimal control theory to study interactions between health capital and education capital over the life cycle. Pauline Ippolito has employed similar techniques to examine the optimal age profile of consumption of goods that are hazardous to health. Peter Coyte has constructed a competitive market equilibrium model of the medical sector in which the behavior of consumers is modeled in terms of an underlying demand for health. Robert Shakotko has studied theoretically and empirically causality among health, a.ssets, and wages using fixed and random effects econometric models. Roger Reynolds has adopted a Bayesian approach to focus on causality between health and income in the cross section. Linda Edwards, Robert Shakotko, and I have obtained a variety of estimates of the impact of the home environment in general and mother’s schooling in particular on child and adolescent health. Pushing back to the earliest stage of the life cycle, Eugene Lewit, Jeffrey Harris, Mark Rosenzweig and Paul Schultz, and Steven Jacobowitz and I have estimated multivariate birth weight and infact survival production functions. In my 1972 monograph I stressed that the demand for medical care is derived from the interaction between the demand function for health and the production function of health. A number of persons have made significant improvements in the admittedly crude estimates of demand functions for medical care in my monograph. Jan Acton has introduced travel and waiting time into the demand function and has shown that these variables are important determinants of utilization in New York City. Jody Sindelar has employed a demand for health framework and detailed measures of the money and time prices to explain male-female differences in the utilization of medical care services. Frederic Slade has used a similar perspective to introduce disability insurance into the demand function for medical care. 0157-6296/82/ oo8o-oooo/$C)2.750 1982 North-Holland
2
M. Grossman, The demandfor health
Rosanna Coffey has used a direct estimate of the reservatic;a wage and one based on James Heckman’s reservation wage methodology to compute the time price of medical care in a sample of women in Dallas, Texas. Currently, Joseph Newhouse, Charles Phelps, Arleen Leibowitz, Willard Manning, and their colleagues at the Rand Corporation are obtaining highly precise estimates of income, money price, and time price elasticities of demand for medical care using the Rand Health Insurance Study. Similar efforts by Gail Wilensky and Louis Rossiter are under way at the National Center for Health Services Research with data from the National Medical Care Expenditure Survey. I am very pleased that my initial work on the demand for health has been refined, modified, and extended in the past decade. I have learned a @eat deal from the studies cited above, but I tl+qk that the area is still a very fertile one for future research. I am anxiously awaiting the results of the Rand and NMCES studies. Since the former contains longitudinal measures of health outcomes, it can be used to estimate multi-equation models of the demand for health, the production of health, and the demand for medical care. I also think that we need to know more about the non-medical determinants of health. In this context, I applaud Victor Fuchs’ current effort to study the relationship between schooling and health in detail, and I agree with his contention that the mechanisms via which schooling affects health have not been fully identified. I think that panel data sets, which allow one to control for ‘unobservables’, can be used to shed light on this and other issues. Finally, lest it be thought that all my suggestions for future research are empirical, I think that we need a life cycle model with uncertainty and endogenous stocks of health and knowledge capital. I also think that the intertemporal and cross-sectional comparative dynamics of such a model have not and therefore should be fully analyzed. References Acton, Jan P., 1975, Nonmonetary factors in the demand for medical care: Some empirical evidence, Journal of Political Economy 83, no. 3, June. Acton, Jan P., 1976, Demand for health care among the urban poor, with special emphasis on the role of time, in: Richard Rosett, ed., The role of health insurance in the tiealth services sector (Neal Watson Publications for the National Bureau of &oqomic Research, New York). Coffey, Rosanna M., 1980, The effect of time on the demand for female medical care services, Ph.D. dissertation (Southern Methodist University, Dallb, TX). Coyte, Peter C., 1982, The economics of medicare: Equilibrium within the medic community, Ph.D. dissertation (University of Western Ontario, London, Ont.). 1 Cropper, Maureen L., 1977, Health, investment in health, and occupational choice, Journal of Political Economy 85, no. 6, Dec. Edwards, Linda N. and Michael Grossman, forthcoming, Adolescent health, family background, and preventive medical care, in: Ismail Sirageldin, David Salkever and Alan Sorkin, eds., Annual series of research in human capital and development, Vol. III (JAI Press, Greenwich, CT).
M. Grossman, The demandfor health
3
Ehrlich, Isaac, 1978, On the interaction between education and health and the concept of human capital, Mimeo., Jan. Fuchs, Victor R., 1982,Time preferences and health: An exploratory study, in: Victor R. Fuchs, ed., Economic aspects of health (University of Chicago Press for the National Bureau of Economic Research, Chicago, IL). Grossman, Michael, 1972, The demand for health: A theoretical and empirical investigation (Columbia University Press for the National Bureau of Economic Research, New York}. Grossman, Michael and Steven Jacobowitx, 1981, Variations in infant mortality rates among counties of the United States: The roles of public policies and programs, Demography 18, no. 4, Nov. Harris, Jeffrey E., 1982, Prenatal medical care and infant mortality, in: Victor R. Fuchs, ed., Economic aspects of health (University of Chicago Press for the Nationd Bureau of Economic Research, Chicago, IL). Ippolito, Pauline M., 1981, Information and the life cycle consumption of hazardous goods, Economic Inquiry 19, no. 4, Oct. L&t, Eugene M., forthcoming, The demand for prenatal care and the production of healthy infants, in: Ismail Sirageldin, David Salkever and Alan So&in, eds., Annual series of research in human capital and development, Vol. III (JAI Press, Greenwich, CT). Newhouse, Joseph P. et al., 1982, Some interim results from a controlled trial of cost sharing in health insurance, Rand report R-2847-HHS, Jan. (The Rand Corporation, Santa Monica, CA>. Phelps, Charles E., 1976, Demand for reimbursement insurance, in: Richard N. Rosett, ed., The role of health insurance in the health services sector (Neal Watson Academic Publications for the National Bureau of Economic Research, New York). Reynolds, Roger A., 1980, A study of the relationship between health and income, Ph.D. dissertation (University of Chicago, Chicago, IL). Rosenzweig, Mark R. and T. Paul Schultx, 1982, Birth weight, the production of child health, and input demand, in: Victor R. Fuchs, ed., Economic aspects of health (Univewity of Chicago Press for the National Bureau of Economic Research, Chicago, IL). Shakotko, Robert A., 1977, Health and economic variables: An empirical investigation of the dynamics, Ph.D. dissertation (University of Minnesota, Minneapolis, MN). Shakotko, Robert A., Linda N. Edwards and Michael Grossman, 1981, An exploration of the dynamic relationship between health and cognitive development in adolescence, in: Jacques van der Gaag and Mark Perlman, eds., Contributions to economic analysis: Health, economics, and health economics (I?orth-Holland, Amsterdam). Sindelar, Jody L., 1979, Differential utilization of medical care by sex: A theoretical and empirical analysis, Ph.D. dissertation (Stanford University, Stanford, CA). Slade, Frederic P., 1981, Labor supply and health incentives under disability insurance, Ph..D. dissertation (University of Pennsylvania, Philadelphia, PA). Wilensky, Gail R. and Louis F. Rossiter, 1981, The magnitude and determinants of physic&\initiated visits in the United States, in: Jacques van der Gaag and Mark Perlman, eds., Contributions to economic analysis: Health, economics, and health economics (NorthHolland, Amsterdam).
THE DEMAND FOR HEALTH AFTER A DECADE
Michael GROSSMAN City University of New York, New York,NY 10036, USA National Bureau of Economic Research, Cambridge, MA 02138, USA
Jaana-Maja Muurinen’s paper is the most recent in a series of theoretical and empirical extensions and applications of the framework for studying the demand for health and medical care that I outlined in my 1972 monograph. Charles Phelps and Maureen Cropper have introduced uncertainty into my basic model. Isaac Ehrlich has used optimal control theory to study interactions between health capital and education capital over the life cycle. Pauline Ippolito has employed similar techniques to examine the optimal age profile of consumption of goods that are hazardous to health. Peter Coyte has constructed a competitive market equilibrium model of the medical sector in which the behavior of consumers is modeled in terms of an underlying demand for health. Robert Shakotko has studied theoretically and empirically causality among health, a.ssets, and wages using fixed and random effects econometric models. Roger Reynolds has adopted a Bayesian approach to focus on causality between health and income in the cross section. Linda Edwards, Robert Shakotko, and I have obtained a variety of estimates of the impact of the home environment in general and mother’s schooling in particular on child and adolescent health. Pushing back to the earliest stage of the life cycle, Eugene Lewit, Jeffrey Harris, Mark Rosenzweig and Paul Schultz, and Steven Jacobowitz and I have estimated multivariate birth weight and infact survival production functions. In my 1972 monograph I stressed that the demand for medical care is derived from the interaction between the demand function for health and the production function of health. A number of persons have made significant improvements in the admittedly crude estimates of demand functions for medical care in my monograph. Jan Acton has introduced travel and waiting time into the demand function and has shown that these variables are important determinants of utilization in New York City. Jody Sindelar has employed a demand for health framework and detailed measures of the money and time prices to explain male-female differences in the utilization of medical care services. Frederic Slade has used a similar perspective to introduce disability insurance into the demand function for medical care. 0157-6296/82/ oo8o-oooo/$C)2.750 1982 North-Holland
2
M. Grossman, The demandfor health
Rosanna Coffey has used a direct estimate of the reservatic;a wage and one based on James Heckman’s reservation wage methodology to compute the time price of medical care in a sample of women in Dallas, Texas. Currently, Joseph Newhouse, Charles Phelps, Arleen Leibowitz, Willard Manning, and their colleagues at the Rand Corporation are obtaining highly precise estimates of income, money price, and time price elasticities of demand for medical care using the Rand Health Insurance Study. Similar efforts by Gail Wilensky and Louis Rossiter are under way at the National Center for Health Services Research with data from the National Medical Care Expenditure Survey. I am very pleased that my initial work on the demand for health has been refined, modified, and extended in the past decade. I have learned a @eat deal from the studies cited above, but I tl+qk that the area is still a very fertile one for future research. I am anxiously awaiting the results of the Rand and NMCES studies. Since the former contains longitudinal measures of health outcomes, it can be used to estimate multi-equation models of the demand for health, the production of health, and the demand for medical care. I also think that we need to know more about the non-medical determinants of health. In this context, I applaud Victor Fuchs’ current effort to study the relationship between schooling and health in detail, and I agree with his contention that the mechanisms via which schooling affects health have not been fully identified. I think that panel data sets, which allow one to control for ‘unobservables’, can be used to shed light on this and other issues. Finally, lest it be thought that all my suggestions for future research are empirical, I think that we need a life cycle model with uncertainty and endogenous stocks of health and knowledge capital. I also think that the intertemporal and cross-sectional comparative dynamics of such a model have not and therefore should be fully analyzed. References Acton, Jan P., 1975, Nonmonetary factors in the demand for medical care: Some empirical evidence, Journal of Political Economy 83, no. 3, June. Acton, Jan P., 1976, Demand for health care among the urban poor, with special emphasis on the role of time, in: Richard Rosett, ed., The role of health insurance in the tiealth services sector (Neal Watson Publications for the National Bureau of &oqomic Research, New York). Coffey, Rosanna M., 1980, The effect of time on the demand for female medical care services, Ph.D. dissertation (Southern Methodist University, Dallb, TX). Coyte, Peter C., 1982, The economics of medicare: Equilibrium within the medic community, Ph.D. dissertation (University of Western Ontario, London, Ont.). 1 Cropper, Maureen L., 1977, Health, investment in health, and occupational choice, Journal of Political Economy 85, no. 6, Dec. Edwards, Linda N. and Michael Grossman, forthcoming, Adolescent health, family background, and preventive medical care, in: Ismail Sirageldin, David Salkever and Alan Sorkin, eds., Annual series of research in human capital and development, Vol. III (JAI Press, Greenwich, CT).
M. Grossman, The demandfor health
3
Ehrlich, Isaac, 1978, On the interaction between education and health and the concept of human capital, Mimeo., Jan. Fuchs, Victor R., 1982,Time preferences and health: An exploratory study, in: Victor R. Fuchs, ed., Economic aspects of health (University of Chicago Press for the National Bureau of Economic Research, Chicago, IL). Grossman, Michael, 1972, The demand for health: A theoretical and empirical investigation (Columbia University Press for the National Bureau of Economic Research, New York}. Grossman, Michael and Steven Jacobowitx, 1981, Variations in infant mortality rates among counties of the United States: The roles of public policies and programs, Demography 18, no. 4, Nov. Harris, Jeffrey E., 1982, Prenatal medical care and infant mortality, in: Victor R. Fuchs, ed., Economic aspects of health (University of Chicago Press for the Nationd Bureau of Economic Research, Chicago, IL). Ippolito, Pauline M., 1981, Information and the life cycle consumption of hazardous goods, Economic Inquiry 19, no. 4, Oct. L&t, Eugene M., forthcoming, The demand for prenatal care and the production of healthy infants, in: Ismail Sirageldin, David Salkever and Alan So&in, eds., Annual series of research in human capital and development, Vol. III (JAI Press, Greenwich, CT). Newhouse, Joseph P. et al., 1982, Some interim results from a controlled trial of cost sharing in health insurance, Rand report R-2847-HHS, Jan. (The Rand Corporation, Santa Monica, CA>. Phelps, Charles E., 1976, Demand for reimbursement insurance, in: Richard N. Rosett, ed., The role of health insurance in the health services sector (Neal Watson Academic Publications for the National Bureau of Economic Research, New York). Reynolds, Roger A., 1980, A study of the relationship between health and income, Ph.D. dissertation (University of Chicago, Chicago, IL). Rosenzweig, Mark R. and T. Paul Schultx, 1982, Birth weight, the production of child health, and input demand, in: Victor R. Fuchs, ed., Economic aspects of health (Univewity of Chicago Press for the National Bureau of Economic Research, Chicago, IL). Shakotko, Robert A., 1977, Health and economic variables: An empirical investigation of the dynamics, Ph.D. dissertation (University of Minnesota, Minneapolis, MN). Shakotko, Robert A., Linda N. Edwards and Michael Grossman, 1981, An exploration of the dynamic relationship between health and cognitive development in adolescence, in: Jacques van der Gaag and Mark Perlman, eds., Contributions to economic analysis: Health, economics, and health economics (I?orth-Holland, Amsterdam). Sindelar, Jody L., 1979, Differential utilization of medical care by sex: A theoretical and empirical analysis, Ph.D. dissertation (Stanford University, Stanford, CA). Slade, Frederic P., 1981, Labor supply and health incentives under disability insurance, Ph..D. dissertation (University of Pennsylvania, Philadelphia, PA). Wilensky, Gail R. and Louis F. Rossiter, 1981, The magnitude and determinants of physic&\initiated visits in the United States, in: Jacques van der Gaag and Mark Perlman, eds., Contributions to economic analysis: Health, economics, and health economics (NorthHolland, Amsterdam).