Scattergood Foundation

Advancing Innovative Strategies for Change in Behavioral Health

Grant Activity: Current Activity Impacting Communities

Why do individuals value health? Common sense vs. Economics, or are we on the same team?

By: J. Catherine Maclean, Ph.D.

“Why do individuals desire good behavioral health?” Common sense suggests that individuals value behavioral health because it allows them to live happy and productive lives.  A related question might be “What determines whether a person has good behavioral health, and why does this vary across individuals”?  Turning again to common sense: some people are born healthier than others; rich people can afford better medical services and live in healthier environments; education barriers prevent people effectively managing their health and accessing the medical system; stigma prevents people from seeking treatment; and myriad other reasons.  I think there is a miss-conception that the economic model views individuals as robotic agents who are unaffected by their environment.  I strongly disagree with this sentiment and hope to convince you in this post that health economic models yield predictions that very often agree with common sense.  I do concede that we as health economists can do a better job of articulating our models and concepts.

In 1972, Dr. Michael Grossman wrote a ground breaking study entitled “On the concept of health capital and the demand for health”.  This study outlined the economic factors that influence health outcomes and the demand for medical services.   Although I cannot do justice to Dr. Grossman’s seminal study, I will try to highlight what I view as the most relevant features for behavioral health.  Grossman examined health broadly, but behavioral health is easily incorporated into this model.

In the Grossman model, individuals are assumed to value health and other goods.  They make health-related decisions to maximize their happiness.  It is my view that this statement drives a substantial amount of push-back against economics in health discussions.  Health economists do not believe that individuals are able to choose whatever amount of health or medical services (or any good for that matter) they would like or that their environment has no impact on these decisions.  Instead health economists believe in “constrained maximization”: in any given situation individuals make health decisions that make them as well off as possible given the constraints or obstacles they face.  We use a broad definition of constraints that incorporates many aspects of the complex, real world: income, culture, environment, safety, laws, stigma, access to medical care, health knowledge, etc.  We often view these constraints as increasing the full cost of good health, where costs have a monetary and non-monetary component.  For example, accessing depression counseling services is more costly (in non-monetary terms) for individuals whose culture views mental health problems as a sign of weakness.

In the economic model, individuals are born with a health stock.  You can think of this stock as genetics or early life circumstance.  Some people are fortunate and are born with a large health stock, while others are less fortunate.  The health stock, like a TV, deteriorates over time.  To maintain the stock, individuals must invest in their health.  The individual can purchase health improving products in the marketplace.  He can also invest his time (e.g., obtaining sufficient sleep).  This division of investments is somewhat artificial.  For example, breaking a tobacco addiction can be costly in terms of both dollars and time.  Finally, when the health stock drops below the minimal level necessary to sustain life, the individual dies.

Economists view health as a good, in some aspects like a TV and in some aspects very different from a TV.  Individuals desire good health, like a TV, because it allows them to engage in activities they enjoy.  Additionally, health (unlike a TV) allows more time to work in the labor market and earn income, and individuals desire income because it allows them to purchase things they like.  Taken together, these assumptions imply that individuals do not desire health (or investments used to produce health) per se, rather health allows individuals to enjoy other activities. 

Several stylized facts emerge from the Grossman model.  Higher income individuals have better health because they can purchase more and higher quality investments.  Education provides skills that increase an individual’s ability chose suitable health investments and to translate these investments into good health.  Individuals make complicated decisions about their health under a wide range of constraints.  To me the Grossman model yields predictions that mirror the common sense answers to my initial questions.  Perhaps we are on the same behavioral-health team?

In my next post, I will outline tools advocated by some economists to make difficult, but necessary, decisions about how to allocate medical services in general, and behavioral health services specifically.

Does the economic model build in many of the real world features than individuals face when making behavioral health decisions? Can you think of an aspect of human life that 1) impacts behavioral health and 2) cannot be incorporated into an economic model for discussion?