Health production functions
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Health Production Functions. Outline. Measures of Health Concepts: Health Production Function Marginal Product of Health Historical Health Production Functions Modern Health Production Functions Contributions of health care Lifestyle & Environment (Pollution) Education.

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Health Production Functions

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Health production functions

Health Production Functions



  • Measures of Health

  • Concepts:

    • Health Production Function

    • Marginal Product of Health

  • Historical Health Production Functions

  • Modern Health Production Functions

    • Contributions of health care

    • Lifestyle & Environment (Pollution)

    • Education

Measures of health status

Measures of Health Status

What do we want:

A measure of the population’s health status, that captures those aspects of health that are meaningful, and can be measured with accuracy (i.e., quantifiable).

  • Two main types mortality and morbidity.

Measures of health status mortality measures

Measures of Health Status:Mortality Measures

  • Popular measures because is easy to quantify

    • know when someone dies and is regularly recorded information

  • Crude death rate

    • number of deaths per 100,000 population

    • for some time period—usually a year

Measures of health status mortality measures1

Measures of Health Status:Mortality Measures

  • Infant mortality rate:

    • Number of death of children < age 1 per 1000 live births

    • Adjust for age, sex, and race to make more meaningful

    • Not necessary accurate in low-income and war-torn places

  • Under-five mortality rate

  • Mortality rate for elderly

Measures of health status mortality measures2

Measures of Health Status:Mortality Measures

  • Life expectancy at birth (male and female)

  • Cause of death

    • In more developed countries, can use the cause of death to make analysis more meaningful

    • i.e., if studying pollution, may want to look at deaths due to asthma, or respiratory infections for infants (< age 1) or small children (< age 5)

Measures of health mortality measures problems

Measures of HealthMortality Measures: Problems

Problems with mortality measures

  • Give information on acute problems that lead to death but don’t provide information on quality of life (do you live in pain and can you perform the tasks you want)

  • Tend to be used in aggregate data analysis not individual analysis

Measures of health morbidity

Measures of HealthMorbidity

  • Morbidity: A statement about the extent of disability a person suffers as a consequence of a disease over time.

  • Difficult to quantify because no clear end point and need to asses: duration, severity, and consequences of a disease.

Measures of health morbidity1

Measures of HealthMorbidity

  • Need to measure the disability which could be physical, mental, functional, or social.

  • Some sources of these types of data are:

    • Hospital inpatient discharge records.

    • Hospital outpatient discharge records / outpatient records.

    • Survey data: self health assessments, days lost from work.

Measures of health morbidity2

Measures of HealthMorbidity

  • Typical morbidity measures includes:

    • Restricted-activity days due to illness

      • e.g. number of working days lost – Table 5.2.

    • Incidence rate of certain chronic conditions.

    • Self-assessment of health status.

    • Measures of mobility or activity (ADLs–activities of daily living).

    • Biomarkers: a characteristic that is objectively measured and evaluated as an indicator or normal biologic process. For example: blood pressure, cortisol (stress measure).

Measures of health morbidity3

Measures of HealthMorbidity

  • Chronic conditions with the highest overall prevalence in US are:

    • Chronic sinusitis

    • Arthritis

    • Asthma

    • Chronic bronchitis

    • Diabetes.

Health production functions determinants of health us pop

Health Production Functions(Determinants of Health: US Pop.)

Health Production Function: describes the relationship or flows of inputs and flows of outputs over a specified period.

  • Where output is usual some measure of health status (HS).

  • HS=F(inputs to health)

  • What could the inputs be?

  • HS=F(health care, environment, education, lifestyle, genetic factors, income)

Health production functions1

Health Production Functions

Health Status (HS)

Does it make sense the curve flattens out, should it bend downwards again?



A>B : as you increase the number of health care inputs, the effects on total health status decrease.







Health Care Inputs (HI)

Marginal product of health care

Marginal Product of Health Care

Marginal Product of Health Care

Marginal Product: Is the increment in health status caused by one extra unit of Health Care, holding all other inputs constant?


MP is diminishing in size, demonstrating the law of diminishing marginal returns.







Health Care Inputs

Marginal product of health care1

Marginal Product of Health Care

  • Marginal product that is relevant for policy makers:

    • They want to know if I add one billion dollars to health care, how much will the health status of the population improve.

  • The marginal product might be different for different types of groups, such as young, elderly, or poor.

Determinants of health historical view

Determinants of Health Historical View

  • To know what factors go into the health production function (inputs) need to understand the determinants of health.

  • Historical Question: what led to the population explosion and increase in life expectancy?

Why has mortality declined

Why has mortality declined?

  • Big medicine theory

    • Antibiotics for infectious diseases

    • High-tech treatments for cardiovascular disease

  • Economic growth theory

    • Nutrition allows one to withstand disease

  • Public health theory

    • Better sewers, cleaner water and air

  • The long reach of early life factors

    • Maternal nutrition in utero and fetal development

    • What looks like big medicine now could be long-term effects of better nutrition, public health in the past

Big medicine

Big Medicine

  • Medicine is often a starting point

    • Seems logical?

  • Many studies show effects of medicine for specific conditions

    • Drug trials

    • Cardiovascular care

    • Small pox!

    • Some better than others

  • Difficult to assign an overall contribution

  • Readings question role of Big Medicine

Big medicine1

Big Medicine

Big medicine antiobiotics

Big Medicine:Antiobiotics

The development of antibiotics helped, but it came very late in the process.

Big medicine cardiovascular disease

Big Medicine: Cardiovascular Disease

Medical advance appears more important for cardiovascular disease.

Economic growth nutrition

Economic growth & nutrition

  • Fogel: Find direct evidence for economic growth hypothesis

  • Measures of nutrition:

    • Height (nutrition as a child, esp. up to age 3)

    • Weight (nutrition as an adult)

  • Finds

    • Taller people live longer

    • People at the appropriate weight live longer

  • Collected lots of data on weights and heights over time

Economic growth explanation

Economic Growth Explanation

  • In 1800, people were shorter and below optimal weight given height.

  • Both heights and weights have increased over time.

  • Fogel: This explains 50 to 80 percent of mortality decline.

Economic growth explanation1

Economic Growth Explanation

  • This was a time of exploration and many new foods were introduced into people diets.

  • Agriculture was advancing, new crops, crop rotation, seed production ….

  • Standards of living were increasing as a result of trade so people had the money to buy more food.

  • Better nutrition results in stronger immune system

Public health explanation

Public Health Explanation

  • Preston and Deaton response to Fogel:

    • Fogel presents evidence on nutritional status not availability

      • Economic growth not only factor in nutrition

      • Interaction between disease and caloric intake

    • By 1900, U.S. well-fed  improvement since then?

    • Relationship between income and health changing

      • Example: China is about as rich as the US in 1900, but has life expectancy fairly close to US today and far above US in 1900

      • Quality of the food matters

The public health revolution

The Public Health Revolution

  • Modern health practices date from the early 20th century (post germ theory)

    • Macro public health: sanitation; clean water; pasteurized milk

    • Micro public health: bathing and hand washing

  • Epidemiological studies: specific public health interventions improve health

  • Gap in child mortality by class emerges after public health information is available

    • Upper classes had more information?

The public health revolution1

The Public Health Revolution

First epidemiological study in public health

  • 1854 and John Snow Cholera outbreak

    • Sept 1854, 600 people living with a few blocks died of cholera. (thought a low lying cloud caused cholera)

    • Obtain water by signing up with a water supply company. (there were a couple of companies in area)

    • One company moved to a less polluted part of Thames–deaths much lower for HH receiving this water.

    • Matter of public health to make sure water coming from clean areas or to chlorinate the water.

The long reach of early life

The Long Reach of Early Life

  • Are recent mortality reductions due to public health or nutrition changes long ago?

    • Maybe there is much more to play out?

  • Almond and Mazumder: Effects of in utero exposure to flu

    • Substantial long-term effects of exposure to flu in utero during 1918 flu pandemic

  • Do other early life factors matter, but less dramatically?

Effects of in utero flu exposure

Effects of in utero flu exposure

Peak of flu pandemic

4th quarter of 1918

Spike in poor health:

2nd quarter of 1919

Why has health improved

Why has health improved?

  • Probably all three mattered

  • Contributions differ by time period

  • Economic development/nutrition

    • Most important before c. 1880

  • Public health/germ theory

    • Most important c. 1880-1960

  • Improved medical care (Big Medicine)

    • Most important since 1960

Determinants of health modern day

Determinants of HealthModern Day

  • Contribution of Health Care to Population Health—which part of the health production curve are we on.

  • Look at elasticity of health status (HS) with respect to health care expenditure (HE).

Determinants of health health care elasticities in the us

Determinants of HealthHealth Care – Elasticities in the US


  • First three use mortality as HS, last measures activity and morbidity.

Determinants of health health care

Determinants of HealthHealth Care

  • 1969 and 82 studies how health exp. has little impact. A 10% increase in health care expenditure reduces mortality by at most 1.7%.

  • Marginal effect of health care on health status is small in US – might be on flat part of health production function.

  • Need to think about population effects: may be small improvement in health status for one person but summed over the population is a much bigger effect.

Determinants of health health care1

Determinants of HealthHealth Care

Do you think the elasticities will be the same in other countries developed or developing?

Determinants of health health care2

Determinants of HealthHealth Care

  • Heterogeneity: Medicare lead to greater improvements in the health of black females than white males.

Determinants of health health care3

Determinants of HealthHealth Care

Young blacks benefit more than whites

Determinants of health health care4

Determinants of HealthHealth Care

  • WIC: government program designed to improve nutrition of women and infant and provide prenatal care.

  • BCHS: Bureau of Community Health Services Projects: i.e., maternal and infant care and community heath centers

  • Able to explain 56.5% of black neonate mortality with these health interventions.

  • But program such as WIC or prenatal care, do more to reduce mortality than expensive neonatal intensive care units (but hospitals make a lot of money from intensive care units).

Determinants of health health care5

Determinants of HealthHealth Care


  • Maybe health care is better at reducing morbidity (reduction of pain, mobility, etc.).


  • Newhouse and Friedlander (1980) looked at biomarkers such as blood pressure, cholesterol, abnormal chest Xrays …

    • Found availability of health care was rarely significantly related to these measures. But better educated individuals had better health.

    • They did not control for the quality of health care, did these organizations do an adequate job.

Determinants of health health care6

Determinants of HealthHealth Care

  • Rand Health Experiment

    • Controlled experiment in health insurance

    • 1974-1982, 7,000 individuals

    • Randomized into 14 different insurance plans but one health maintenance organization. (different price, same quality)

    • Co-payments ranged from 0-95% with a maximum outlay of $1000 dollars per participant.

    • Wanted to test the effects of alternative health insurance policies on the demand for health care and on the health status.

    • Fully insured purchased roughly 40% more health care.

Rand health experiment

Rand Health Experiment

  • Little difference in health status

Determinants of health health care7

Determinants of HealthHealth Care

Rand Health Experiment (continued)

Folland, et al. use this as evidence that health care has little effect on health status.

  • How would you criticize the study.

    • Is 40% meaningful (reduce from 2 visits to the doctor to 1 visit?) might not have been going enough to the doctor in the first place.

Determinants of health health care8

Determinants of HealthHealth Care

  • We showed earlier that subgroups mattered. So what is the effect of greater costs on the poor, on newborns, infants or on blacks—other studies show that the poor’s health declined as the amount of insurance they had to pay increased.

  • Time period of the study, duration of experiment and length of time till poor health are also important factors.

Determinants of health health care9

Determinants of HealthHealth Care

  • Folland summarizes that health care is not a major determinant of health status.

  • So what else might be?

Determinants of health environment and life style factors

Determinants of HealthEnvironment and Life Style Factors

  • Evidence shows that countries whose citizens have better life-styles (lower smoking, more exercise, not excessive drinking…) have better health status. (difference between US and Europe?)

Determinants of health environment and life style factors1

Determinants of HealthEnvironment and Life Style Factors

  • Fuchs compares average death rates in Nevada and Utah for 1959-1961 and 1966-1988.

    • Compares these two states because feels they are similar, same level of income and medical care, but Utah has Mormons so smoke and drink less.

    • To do this better need to control for as many observables as you can (income, pollution levels, % urban population ….)

Determinants of health environment and life style factors2

Determinants of HealthEnvironment and Life Style Factors

Concludes the lifestyle is an important part of health.

Determinants of health environment and life style factors3

Determinants of HealthEnvironment and Life Style Factors

  • What is a major health problem today and what type of life-style factors lead to this? What is being done about it?

  • There is a lot of work going on studying the effects of air pollution (especially particulate matter) on asthma and other respiratory disease.

  • If you want to look at recent economic studies look at Chay and Greenstone.

  • Drug use/smoking/excessive drinking: especially crucial for newborn health.

Determinants of health income

Determinants of HealthIncome

  • Talked about this for developing countries.

  • But just looking in the developed (already rich world) there is less of a correlation between health and income. This is partly because there is just not enough variation in income.

  • Pritchett and Summers (1996) do show that people with very low incomes in developed countries have worse health.

Determinants of health education

Determinants of HealthEducation

Two Theories:

1. Education central to health

  • Education not important

Determinants of health education1

Determinants of HealthEducation

1. Health important

  • Better educated people know how to use medical and other market inputs and their own time to produce health care.

    • More efficient producer of health status.

    • Medicaid, all the confusing paper work, when are you eligible and when not. Hard for an uneducated person to figure this out.

    • Better educated probably demand more answers.

    • Able to read and understand how to take care of themselves better.

Determinants of health education2

Determinants of HealthEducation

  • Education not important

  • Omitted Variable Bias

    • Some third factor that is missing that effects both education and health status (e.g. mother’s education).

Determinants of health education3

Determinants of HealthEducation


  • Tends to show that theory 1 is correct. Education does lead to better health outcomes.

    • Miguel article-Health and Development Section

  • Lleras-Muney (2002): used timing of compulsory education laws.

    • Birth cohorts from before and after compulsory education would have had similar experiences but differed in education.

    • Compulsory education led to 1.7 more years of life per person.

Health production functions developing countries

Health Production FunctionsDeveloping Countries

  • Van der Gaag and Gertler (1990)

  • Interpret as elasticities (log-log relationship).

Van der gaag and gertler

Van der Gaag and Gertler

  • Literacy is a very important factor. (not showing causation like Miguel is trying to show).

Health production functions developing countries1

Health Production FunctionsDeveloping Countries

  • Link between education and health weakens when family background variables are controlled for.

  • Correlation between health care expenditures and health.

    • A 10% increase in health exp. is associated with an increase of 0.6 years of life expectancy, 4.1% reduction in IMR, 8.7% reduction in child mortality rate.

Discussion questions

Discussion Questions

  • Do you think how health care is practiced might affect the impact of health care on health status? What might you change in the US system?

  • Do you think public and private dollars at substitutable, i.e., will you buy the same kind of health care and will it have the same effect on your health status?

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