The Grossman model after 40 years

This editorial presents a critical review of the health model pioneered by Michael Grossman (MGM) in 1972 [8]. It argues that whereas the MGM has great charm for economists, it fails to achieve acceptance by interested laypersons and policy makers. The main reasons for this failure are: (1) the assumption of a long and fixed planning horizon, (2) a fixed ratio between individuals healthcare expenditure and the cost of their own health-enhancing efforts regardless of their state of health, and (3) their presumed ability to restore the state of health deemed optimal at a speed that does not depend on their state of health. An alternative formulation emphasizing the stochastic nature of health production is sketched that conceptually provides solutions to these three problems. In addition, it permits discarding a popular medical argument that seems to undermine the very basis of welfare analysis applied to health by claiming preferences to be unstable: "As long as you are healthy, you don't give a damn, but as soon as you are sick, you are prepared to sacrifice everything to restore your health." The editorial concludes by outlining a research program that may help health economists break away from their MGM fixation.