Theoretical shortcomings of the Grossman model

Rok Hren 1
  • 1 Johnson & Johnson, d.o.o., Šmartinska 53, 1000 Ljubljana, Slovenia

Theoretical shortcomings of the Grossman model

This article contains a review of the seminal Grossman model from a perspective of assumptions and simplifications, which were necessary to make the model tractable. The Grossman model emphasises health as a fundamental commodity, which implies that the demand for healthcare is a derived demand; in the model, individuals are both consumers and producers of health. The model predicts that an individual would invest in health until the marginal benefit of health equals its marginal cost; this equilibrium demand for health entails that the length of an individual's life would be determined endogenously. This review also discusses the model's refinements and extensions that have relaxed some of the constraints of the original model. In spite of its shortcomings, the Grossman model remains — even after 40 years — one of the few models in the realm of health economics, which attempts to conceptualise the complex demand for health and healthcare both theoretically and empirically.

If the inline PDF is not rendering correctly, you can download the PDF file here.

  • Constitution of the World Health Organization. Basic Documents, Forty-fifth ed. Geneva: World Health Organization, 2006. Available 20. 12. 2011 on:

  • The World Health Report 2000: health systems - improving performance. Geneva: World Health Organization, 2000.

  • A conceptual framework for action on the social determinants of health. Geneva: World Health Organization, 2010.

  • Rogers RG, Hackenberg R. Extending epidemiologic transition theory: a new stage. Soc Biol 1987; 34(3/4): 234-43.

  • Yusuf S, Reddy S, Ôunpuu S, Anand S. Global burden of cardiovascular disease. Part I: general considerations, the epidemiologic transition, risk factors, and impact of urbanization. Circulation 2001; 104: 2746-53.

  • Gaziano TA. Cardiovascular disease in the developing world and its cost-effective management. Cardiol Rounds 2005; 9(2): 1-6.

  • Casselli G, Mesle F, Vallin J. Epidemiologic transition theory exceptions. Genus: Journal of Population Sciences 2002; 9: 9-51.

  • Grossman M. The demand for health: a theoretical and empirical investigation. New York: National Bureau of Economic Research, 1972.

  • Grossman M. On the concept of health capital and the demand for health. J Polit Econ 1972; 80(2): 223-55.

  • Grossman M. The human capital model. In: Culyer AJ, Newhouse JP, editors. Handbook of health economics. Vol. 1A. Amsterdam, Elsevier, 2000: 347-408.

  • Becker G. A theory of the allocation of time. Econ J 1965; 75(299): 493-517.

  • Zweifel P, Breyer F. Health economics. New York: Oxford University Press, 1997.

  • Zweifel P, Breyer F, Kifmann M. Health economics. 2nd ed. Dordrecht, New York: Springer, 2009.

  • Mushkin SJ. Health as an investment. J Polit Econ 1962; 70: S129-S157.

  • McGuire A, Henderson J, Mooney G. The economics of health care: an introductory text. London: Routledge, 1988.

  • Wagstaff A. The demand for health: an empirical reformulation of the Grossman model. Health Econ 1993; 2(2):189-98.

  • Muurien J-M. Demand for health: a generalized Grossman model. J Health Econ 1982; 1:5-28.

  • Case AC, Deaton A. Broken down by work and sex: how our health declines. Cambridge: National Bureau of Economic Research, 2003.

  • Dowie J. The portfolio approach to health behaviour. Soc Sci Med 1975; 9(11/12):619-31.

  • Liljas B. The demand for health with uncertainty and insurance. J Health Econ 1988; 17(2): 153-70.

  • Folland S, Goodman AC, Stano M. The economics of health and health care (6th ed.). Upper Saddle River: Pearson Prentice Hall, 2010.

  • Ehrlich I, Chuma H. A model of the demand for longevity and the value of life extension. J Polit Econ 1990; 98(4): 761-82.

  • Usher D. Comments on »The correlation between health and schooling«. In: Terleckyj NE, editor. Household Production and Consumption. New York: National Bureau of Econometric Research, 1975.

  • Halliday TJ, He H, Zhang H. Health investment over the life-cycle. Working Papers 200910. Honolulu: University of Hawaii at Manoa, Department of Economics, 2009.

  • Cropper ML. Health, investment in health and occupational choice. J Polit Econ 1977; 85(6):1273-94.

  • Muurien J-M, Le Grand J. The economic analysis of inequalities in health. Soc Sci Med 1985; 20(10): 1029-35.

  • Erbsland M, Ried W, Ulrich V. Health, health care, and the environment: econometric evidence from German micro data. Health Econ 1995; 4(3):169-82.

  • Leonard D, Van Long N. Optimal control theory static optimization in economics. Cambridge: Cambridge University Press, 1996.

  • Jacobson L. The family as producer of health — an extended Grossman model. J Health Econ 2000; 19(5): 611-37.

  • Bolin K, Jacobson L, Lindgren B. The family as the health producer — when spouses are Nash-bargainers. J Health Econ 2001: 20(3): 349-62.

  • Kohn LJ. A dynamic demand for medical care. PhD Thesis. Newark, NJ: Rutgers The State University of New Jersey, 2009.

  • Kaiser Family Foundation. Trends in health care costs and spending. 2007. Available 20. 12. 2011 on:

  • Leu R, Gerfin M. Die Nachfrage nach Gesundheit — Ein empirischer Test des Grossman-Modells. In: Gäfgen G, editor. Informations- und Planungsprobleme in offentlichen Aufgabenbereichen. Frankfurt: Peter Lang, 1992: 1-90.

  • Wagstaff A. The demand for health: some new empirical evidence. J Health Econ 1986; 5(3):195-233.

  • Grossman M. It's better to be the first or one of the first even if you're wrong (especially if you pick interesting problems to work on). Seminar at the City University of New York, New York City, September 21, 2010. Available 20. 12. 2011 on:

  • Jiang X. An internal critique of neoclasical theory of health care consumption: a path towards a better theoretical alternative. Boston: New School for Social Research, University of Massachussets, 2008.

  • Nocera S, Zweifel P. The demand for health: an empirical test of the Grossman model using panel data. Dev Health Econ Pub Policy 1998; 6:35-49.


Journal + Issues