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On Medical Progress and Health Care Demand: A Ces Perspective Using the Grossman Model of Health Status
Author(s) -
Batinti Alberto
Publication year - 2015
Publication title -
health economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.55
H-Index - 109
eISSN - 1099-1050
pISSN - 1057-9230
DOI - 10.1002/hec.3109
Subject(s) - grossman , health care , elasticity (physics) , elasticity of substitution , consumption (sociology) , economics , technological change , health technology , price elasticity of demand , production (economics) , econometrics , microeconomics , physics , sociology , economic growth , social science , macroeconomics , keynesian economics , thermodynamics
I propose an application of the pure‐consumption version of the Grossman model of health care demand, where utility depends on consumption and health status and health status on medical care and health technology. I derive the conditions under which an improvement in health care technology leads to an increase/decrease in health care consumption. In particular, I show how the direction of the effect depends on the relationship between the constant elasticity of substitution parameters of the utility and health production functions. I find that, under the constancy assumption, the ratio of the two elasticity of substitution parameters determines the direction of a technological change on health care demand. On the other hand, the technology share parameter in the health production function contributes to the size but not to the direction of the technological effect. I finally explore how the ratio of the elasticity of substitution parameters work in measurement and practice and discuss how future research may use the theoretical insight provided here. Copyright © 2014 John Wiley & Sons, Ltd.