Working Papers

Theoretical Simulation in Health Economics: An application to Grossman’s Model of Investment in Health Capital

Katerina Koka, Audrey Laporte, Brian Ferguson

In this paper we argue on the merits of theoretical simulation, a widely used technique in other areas of theoretical economics, to extending the phase diagram analysis of the Grossman’s 1972 model of investment in health capital. We argue that theoretical simulations are particularly useful when considering problems with multiple state variables. To illustrate, we perform simulations with varying assumptions of health depreciation rates and conditional survival probabilities and generate time-plots for the evolution of health capital and health investments over individual finite lifetimes.

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Paper Keywords

theoretical simulation, grossman model, health capital