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On the one hand, one might argue that the coefficients determined in Wagstaff (1986) and similar analyses are not reliable estimates of the model’s parameters. For example, Wagstaff suggests that in moving from the theoretical to the empiricalmodel inappropriate assumptions may have been introduced (see Wagstaff, 1986, for details). Or the identification of medical care with market inputs may insufficiently characterize health inputs if non-medical inputs are important in the production of health.On the other hand, one may take the estimates at face value and seek explanations in terms of the underlying model. Interestingly, Wagstaff (1986) suggests that, contrary to what is assumed in Grossman’s theoretical work, the negative relationship may reflect a non-instantaneous adjustment of health capital to its “optimal”value. This, Wagstaff argues, may be the result of a constraint on medical care or be due to the existence of adjustment costs. Wagstaff finds in subsequent analysis (Wagstaff, 1993) that a reformulation of Grossman’s empirical model with non-instantaneous adjustment is not only more consistent with Grossman’s theoretical model but also with the data.
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