Comparative dynamic analysis of the full Grossman model

The paper applies the method of comparative dynamic analysis to the full Grossman model. For a particular class of solutions, it derives the equations implicitly defining the complete trajectories of the endogenous variables. Relying on the concept of Frisch decision functions, the impact of any parametric change on an endogenous variable can be decomposed into a direct and an indirect effect. The focus of the paper is on marginal changes in the rate of health capital depreciation. It also analyses the impact of either initial financial wealth or the initial stock of health capital. While the direction of most effects remains ambiguous in the full model, the assumption of a zero consumption benefit of health is sufficient to obtain a definite sign for any direct or indirect effect. (C) 1998 Elsevier Science B.V. All rights reserved.