In the Grossman model of health production, people maximize lifetime utility overconsumption of health (H) and a composite of all other goods (X). In the model, health is a stockthat evolves over time and depends upon health in the previous period (Ht-1), investments inhealth during the previous period (It-1), and a depreciation rate (γ). The level of health in period tis Ht=(1- γ)Ht-1+It-1.a. Consider two individuals with H=50 in the current period. The two individuals areidentical except that individual A is 20 years old and has a γ of 0.1, while individual B is30 years old and has a γ of 0.2. Explain why it is more difficult for individual B tomaintain the same level of health as individual A.b. Give 2 real-world examples of how an increase in education would improve a person’sproductivity of health investment (I).

In the Grossman model of health production, people maximize lifetime utility overconsumption of health (H) and a composite of all other goods (X). In the model, health is a stockthat evolves over time and depends upon health in the previous period (Ht-1), investments inhealth during the previous period (It-1), and a depreciation rate (γ). The level of health in period tis Ht=(1- γ)Ht-1+It-1.a. Consider two individuals with H=50 in the current period. The two individuals areidentical except that individual A is 20 years old and has a γ of 0.1, while individual B is30 years old and has a γ of 0.2. Explain why it is more difficult for individual B tomaintain the same level of health as individual A.b. Give 2 real-world examples of how an increase in education would improve a person’sproductivity of health investment (I).

EBK HEALTH ECONOMICS AND POLICY

7th Edition

ISBN:9781337668279

Author:Henderson

Publisher:Henderson

Chapter4: Economic Evaluation In Health Care

Section: Chapter Questions

Problem 8QAP

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Indicate whether the statement is true or false, and justify your answer.In real life, investments in health can generate long-lasting benefits, but the Grossman model neglects this aspect of health.
Indicate whether the statement is true or false, and justify your answer.In the framework of the Grossman model, an individual’s level of health is completely controlled by her actions. Thus, in any given period, an individual is unconstrained in her choice of health status.
Indicate whether the statement is true or false, and justify your answer.In the Grossman model, the marginal efficiency of investment in health care declines as health improves.
Indicate whether the statement is true or false, and justify your answer.Health status earlier in life is a good predictor of wealth later in life.
The doctor must decide which medication to prescribe to the patient. Possible states are s∈[0,1]. She has three medications available: A, B, and C. The effect of medication A is described by the blue function, the effect of medication B by the red function, and the effect of medication C by the black function. For which medication will the doctor decide if she decides based on the maximax criterion and Wald's maximin criterion? The blue function is defined as fA(s)=1/5(cos(4s)+2), the red function is fB(s)=2/5(sin(4s)+1), and the black function is fC(s)=1/2. For which medication will the doctor decide if she decides based on Laplace's criterion?
One major premise of the Rothschild–Stiglitz model is that there is a perfectly competitive market for health insurance. Suppose instead that the market is not perfectly competitive, and in fact competitor firms have a hard time entering the market. Could a pooling equilibrium occur in this case? What is it about competition that prevents pooling in the Rothschild–Stiglitz model? No formal proof is necessary, but do make your reasoning clear. Evaluate the following statement: competition in health insurance markets is harmful.
Indicate whether the statement is true or false, and justify your answer. In the Grossman model, optimal health status declines with age.
Indicate whether the statement is true or false, and justify your answer.The Rothschild–Stiglitz model predicts that people who own life insurance should have fewer unobserved traits (that is, unobserved by insurance companies) that lead to a higher risk of death when compared against people with the same level of income but who do not own life insurance.
Indicate whether the statement is true or false, and justify your answer.The fact that older people spend more on health care is evidence against theGrossman model, which predicts that spending will decline as δ increases.
In the framework of the Grossman model, suppose there is an increase in the return in alternate non-health market investments. Draw what happens to the MEC curve and the optimal level of health. Explain intuitively why this might be the case in reality.
The Grossman model emphasizes the important roles that education, health knowledge, and expectations about future income and health play in the choices that determine health in both the short and long runs. Education both increases the likelihood of having higher income, which is good for health, and can compensate for lower income in which of the following ways: a. Education is associated with better health literacy, knowledge and execution of healthy diets and lifestyles b. Education enables people to communicate better with well-educated doctors and so they learn better how to manage their own health over time c. Education enables people to read about side effects and avoid unnecessarily risky procedures d. All of the above e. None of the above
An empirically testable hypothesis for additional health care expenditure as an investment rather than as an expense is: a. If an increase in health care expenditure today results in an increase in productivity tomorrow, then health careexpenditure has an investment effect. b. If an increase in health care expenditure today results in an a rise in health care stock prices, then health care expenditure has an investment effect. c. If an increase in health care expenditure today results in worse health outcomes today, then health care expenditure has an investment effect. d. If an increase in health care expenditure today results in a more competitive health care market tomorrow, then health care expenditure has an investment effect.