Dynamic panel data estimation of an integrated Grossman and Becker-Murphy model of health and addiction

Jones, Andrew M. and Laporte, Audrey and Rice, Nigel and Zucchelli, Eugenio (2019) Dynamic panel data estimation of an integrated Grossman and Becker-Murphy model of health and addiction. Empirical Economics, 56 (2). 703–733. ISSN 0377-7332

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We propose a dynamic panel data approach to estimate a model that integrates the Becker-Murphy theory of rational addiction with the Grossman model of health investment. We define an individual’s lifetime smoking consumption and investments in health capital as simultaneous choices within a single optimisation problem. We show that this can be estimated using GMM system estimation of two stand-alone single fourth-order difference equations of health capital and smoking. These preserve roots and fundamental dynamics of the original system of four interrelated first-order equations. Monte Carlo simulations confirm that this reduced-form dynamic estimation also produces very similar estimates to the ones of the initial system of equations. We argue that, in the presence of long panel data, this approach may provide a feasible alternative for the estimation of a complex life-cycle model of human capital.

Item Type: Journal Article
Journal or Publication Title: Empirical Economics
Additional Information: The final publication is available at Springer via http://dx.doi.org/10.1007/s00181-017-1367-6
Uncontrolled Keywords: /dk/atira/pure/subjectarea/asjc/2600/2613
Departments: Faculty of Health and Medicine > Health Research
ID Code: 88627
Deposited By: ep_importer_pure
Deposited On: 09 Nov 2017 16:54
Refereed?: Yes
Published?: Published
Last Modified: 20 Jan 2020 03:17
URI: https://eprints.lancs.ac.uk/id/eprint/88627

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