Investment in health when health is stochastic |
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Authors: | Email author" target="_blank">Audrey?LaporteEmail author Brian?S?Ferguson |
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Institution: | (1) Department of Health Policy, Management and Evaluation, Faculty of Medicine, University of Toronto, 155 College Street, 4th Floor, Toronto, ON, M5T 3M6, Canada;(2) Department of Economics, University of Guelph Guelph, ON, Canada |
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Abstract: | This paper applies stochastic control theory to the Grossman model of investment in health to characterize the case of a serious
illness, i.e., one that permanently reduces the individual’s stock of health capital. Health itself is modelled as a stochastic
variable, whose variation over time is determined partly by a deterministic factor and partly by a random factor with a Poisson
distribution. After setting out the equations for the deterministic and stochastic approaches, phase diagrams illustrate how
the introduction of uncertainty alters the model. The framework is also used to consider the effect of the introduction of
a vaccine.
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Keywords: | Investment in health Stochastic Grossman model |
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