Conceptual Knowledge on Health as Consumption and Capital Goods: A Theoretical Review of Michael Grossman (2000) Human Capital Model

Abstract

Grossman’s human capital model is a model that explains the fundamental elements of health economist program for which every health economist student should be able to understand its theoretical implications and application to the real-world situation. Students find it very difficult to understand the mathematical manipulations of the model. This review is to break the model into its simplest form. The review of this model will also bring to the notice of the policy makers on the relevance of the Grossman human capital model to the society and the world at large. The main purpose of the review is to educate the public on the knowledge of health as a capital good and also as consumption good with specific reference from Grossman (2000) human capital model. The model assumed health as capital and consumption good. He argues that health is a capital good because it depreciates with age; it is also used for investment and for further production. Again, Grossman see health as consumption good because individual consumers derive a direct utility or satisfaction from health. Thus the fact that one is healthy makes him/her happy. Also it is consumption good because health is produced by an individual consumer and cannot be sold to anyone since it is already imbedded in the consumer.