A Revisit to the Grossman Model with Endogenous Health Depreciation
We extend the Grossman health capital model by relaxing the exogenous health depreciation rate to model the direct and indirect channels through which people improve their health through health investment. We confirm that the marginal cost of health supply decreases when the depreciation rate is an endogenous function of health investment and that the marginally reduced cost is greater for people in later life stages. We also find that the indirect channelaEUR"depreciation rate reductionaEUR"is more effective for people in good health; however, the direct channelaEUR"the classical Grossman modelaEUR"is more powerful for those in poor health. Our findings provide a more comprehensive view of the procedure for optimal health determination.