Journal of Health Economics

Volume 5, Issue 3, September 1986, Pages 195-233

The demand for health: Some new empirical evidence

https://doi.org/10.1016/0167-6296(86)90015-9 Get rights and content

Abstract

This paper presents some new estimates of the ‘pure investment’ and ‘pure consumption’ models of the demand for health. In contrast to previous studies, the paper presents parameter estimates of both reduced-form and structural demand for health care equations. The latter — which are obtained by treating health capital as a latent variable in a recursive equation system — provide a safer way of checking the consistency of the model's predictions with the data. The present analysis of the pure consumption model differs from previous analyses in its recognition of the dependency of the shadow price of initial assets of the entire lifetime profiles of the model's exogenous variables. The paper also explores the implications in terms of reliability of parameter estimates of the failure on the part of previous studies to recognize this.

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^∗: I am grateful to Michael Grossman, Joseph Newhouse and an anonymous referee for helpful comments on an earlier version of this paper; to Gavin Mooney, Kjeld Møller Pedersen and Alan Williams for helpful suggestions and encouragement; and to Karl Jöreskog and Dag Sörbom for useful advice on the use of LISREL. None of these persons, however, is responsible for any errors in the paper. Much of the work for this paper was completed whilst I was working at The Swedish Institute for Health Economics: I am grateful to Björn Lindgren for giving me the opportunity to devote so much of my time there to my thesis work. My thanks too to the Danish National Institute of Social Research for making the Danish Welfare Survey available and to the British Economic and Social Research Council for financial assistance.