() and Michael R. Caputo
Kristian Bolin: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: PO Box 640, SE 40530 GÖTEBORG, Sweden
Michael R. Caputo: Department of Economics University of Central Florida, Postal: P.O. Box 161400 Orlando, Florida 32816-1400
Abstract: The health capital model of Grossman (1972) is extended to account for uncertainty in the rate at which a stock of health depreciates. Two versions of the model are contemplated, one with a fully functioning financial market and the other in its absence. The comparative dynamics of the consumption and health-investment demand functions are studied in both models in a general setting, where it is shown that the key to deriving refutable results is to determine how a parameter or state variable affects the lifetime marginal utilities of health and wealth. To add further bite to the results, a stochastic control problem is solved for its feedback consumption and health-investment demand functions, thereby yielding estimable structural demand functions.
24 pages, October 2017
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