For citation:
Mao, R., Panikarova, S. V., & Wang, J. (2026). Limitations of the Grossman Model and New Health Capital Production Model. AlterEconomics, 23(2), 294–312. https://doi.org/10.31063/AlterEconomics/2026.23-2.3
Abstract:
Health capital, as a core component of human capital, underpins both personal and social development. Michael Grossman’s influential model of health capital production has shaped human capital theory, yet it contains fundamental flaws that remain inadequately addressed. This study critically examines these flaws and proposes an improved model. Using mathematical modeling and exponential functions, the authors reconstruct the Grossman model for intertemporal transactions, revealing the underlying mechanism of health capital production. They identify several key shortcomings: the model ignores the lifelong, continuous nature of health capital production; assumes unconditional returns on investment, when in reality excessive investment yields negative outcomes; overlooks the role of environmental factors in accelerating depreciation; and incorrectly assumes that health capital can be carried over between life periods. The authors argue that health capital production works by reducing depreciation rates, which rise due to external environmental pressures, to maximize available capital at any given time. Health-related events affect individual health capital solely through shifts in depreciation coefficients during maturation and aging. The study proposes a new theoretical framework that addresses these gaps, offering a foundation for more accurate forecasting of human capital and empirical research into health capital.
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