Household production of health investment: Analysis and applications

Michael Grossman's health investment model provides significant insights in to allocations between both leisure and income and health and nonhealth goo ds. Our geometric extension (i) integrates labor-leisure choice with the co nsumer's production of both health and nonhealth goods and (ii) distinguish es between medical expenditures and healthcare investment, This provides a framework for examining the effects of changes in incomes and wages, altern ative insurance arrangements (including managed care), travel times, waitin g times, and schooling. Observed differences between the income elasticitie s for health goods and health investment can be resolved through relative r esource intensities in the production of health and nonhealth goods.