Question

Using the Grossman model as a jumping off point, discuss how economic resources may be affected by the stock of health. Be sure to consider how both current health status and past health status may impact economic resources.

Answer 1

Grossman model :-

The Grossman model of health demand is a model for studying the demand for health and medical care outlined by Michael Grossman in a monograph in 1972 entitled: The demand for health.

In this model, health is a durable capital good which is inherited and depreciates over time. Investment in health takes the form of medical care purchases and other inputs and depreciation is interpreted as natural deterioration of health over time. In the model, health enters the utility function directly as a good people derive pleasure from and indirectly as an investment which makes more healthy time available for market and non-market activities

he demand for health is somewhat more complicated than the demand for a typical product. Here, the individual demands health and not health care. The demand for health care is, therefore, a derived demand.

The central idea behind Grossman’s model of demand for health is how age, education, health status, income etc. affect the production of health through the demand for health capital. Michael Grossman defined health both as a consumption good as well as a production good. He provided two reasons behind this; one health is consumed directly i.e. people are happier when they are healthier. Second, health is an investment i.e. good health permits people to do other things. Thus, the individual is both the consumer and the producer of health.This model introduces the idea of investing in human capital (health and education) to improve outcomes in both the market (work) and non-market (household) sectors.

economic resources may be affected by the stock 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. ... These factors are used to determine the optimal level of health that an individual will demand.

Applying economic thinking to an understanding of resource use in patient care is challenging given the complexities of delivering health care in a hospital. Health-care markets lack the characteristics needed to determine a "market" price that reflects the economic value of resources used. However, resource allocation in a hospital can be analyzed by using production theory to determine efficient resource use. The information provided by hospital epidemiologists is critical to understanding health-care production processes used by a hospital and developing economic incentives to promote antibiotic effectiveness and infection control.

We estimate a production function model of aggregate economic growth including two variables that microeconomists have identified as fundamental components of human capital: work experience and health. Our main result is that good health has a positive, sizable, and statistically significant effect on aggregate output even when we control for experience of the workforce.

Current health status and past health status may impact economic resources.:-

The use of global measures of health status has been advocated as a potential method for providing data on perceived need in the community. The advantage of global health measures is that population norms can be derived to provide baseline data. Those specific measures are important for clinical decision-making

Past status - Public health and medical journals between 1990 and 2015 that included combinations of ‘mortality’, ‘life expectancy’ or ‘malnutrition’ with either ‘GDP’, ‘unemployment’, ‘recessions’, ‘downturns’ or ‘crises’. We then included only empirical studies that considered indicators of health outcomes, including mortality, malnutrition, and life expectancy, as the dependent variable and Gross Domestic Product (GDP), GDP per capita, growth in GDP (or GDP per capita) or the unemployment rate as the main explanatory variable.

Current status:- :The world has experienced a series of pandemics — SARS in 2003, H5N1 in 2006, H1N1 in 2009, Ebola in 2013, MERS in 2015 — but none of them turned a healthcare crisis into a global financial crisis. To all the naysayers of globalisation, Covid-19 has proven that we live in an inter-connected world of public healthcare where a health pandemic can contract global GDP by 3% with GDP per capita shrinking across 170 nations.