GROSSMAN MODEL 1
Various factorsinfluence life expectancies across the globe. The more developedcountries have higher life expectancies due to the availability ofefficient medical facilities as well as financial abilities to accessvarious commodities that improve the quality of life (Chenery et al.,1988). Additionally, the governments of these developed nations haveimplemented strategies to make sure that the provision of healthcareis given utmost importance. The citizens are considered to have aright to quality healthcare, and as such, there are substantial fundsdirected towards the sector. Most of the developing nations grapplein poverty and access to quality medical attention is reserved forthe wealthy. Furthermore, the health sector is not developed. Thelack of adequate equipment increases the possibility of the lifeexpectancy diminishing. This paper analyzes the reasons for thehigher life expectancy among women in the United States in comparisonto the less developed nations across the globe. The Grossman modelof health production will be used to evaluate the authenticity of theassumption.
The GrossmanModel of Health Production was developed by Michael Grossman in 1952and is used in the extensive analysis of healthcare demand (Cheneryet al., 1988). It postulates that all individuals are both producersand consumers of health. His framework argues that healthcare is acommodity that is likely to degrade over time due to the lack of“investments.” Grossman also argues that healthcare can beconsidered as capital due to its ability to yield direct satisfactionand utility (Frew, 2011). Moreover, it is assumed to be an investmentcommodity that produces indirect satisfaction in the form of fewersick days and improved wages (Frew, 2011). Investments are made inthe health system since individuals have to trade off resources thatare devoted to attaining perfect health. Some of the activities thatmay lead to this include exercising in the gym and dieting (Frew,2011).
The model isbased on two primary concepts namely the cost of capital and themarginal efficiency of capital (MEI) (Frew, 2011). The cost ofcapital is obtained by summing opportunity cost and the rate ofdepreciation of the goods
C = r + δ
On the other hand, MEI determines the rate of return on the amount ofresources that have been invested (Frew, 2011). In instances wherethe performance of the capital good is higher than the costsincurred, the commodity will be purchased. On the other hand, if thereturns are lower than the expenses, then no investments can be made(Frew, 2011). However, such purchases are only made to the pointwhereby the rate of return equals the cost of capital.
Figure 1: Changes in Equilibrium, (Frew, 2011)
Optimal healthstock, also known as, demand for the health inputs, may have animpact on the life expectancy. Regarding the changes in equilibriumon age, the model discusses the rate at which health stock maydecline during specific durations and increase during some periods.For personal ages, the rate of health stock will most likely increase(Frew, 2011). The health of the older individuals is likely todeteriorate at a faster rate in comparison to that of the youngerones. This is only achievable based on the assumption that wages andother factors do not have an impact on the marginal efficiency ofcapital (Frew, 2011). From the above graph above, there is an inverserelationship between the cost of capital and health cost. As such, ininstances where the cost of capital is high, then the possibilitythat health stock will be minimal is greater.
In conclusion, women in the United States can be assumed to havehigher life expectancies than the male counterparts as a result ofthe “investments” they make in the healthcare system. This ishighlighted by the time allocated to health-related activities. Onthe other hand, optimal health stock is higher among men in thedeveloping nations.
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Chenery, H. B., Srinivasan, T. N., Behrman, J. R., Rodrik, D.,Rosenzweig, M. R., Schultz, T. P., & Strauss, J. (1988). Handbookof development economics.
Frew, E. (2011). The Demand for health andhealthcare – Grossman Model. University of Birmingham
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