The Production of Health, an Exploratory Study

The relationship of mortality of whites to both medical care and environmental variables is examined in a regression analysis across states in 1960. Medical care is alternatively measured by expenditures and by the output of a Cobb-Douglas production function combining the services of physicians, paramedical personnel, capital, and drugs. Simultaneous equation bias resulting from the influence of factor supply curves and demand for medical care is dealt with by estimating a more complete model. Both two-stage least squares and ordinary least squares estimates are presented. The elasticity of the age-adjusted death rate with respect to medical services is about -0.1. Environmental variables are far more important than medical care. High education is associated with relatively low death rates. High income, however, is associated with high mortality when medical care and education are controlled for. This may reflect unfavorable diets, lack of exercise, psychological tensions, etc. The positive association of mortality with income may explain the failure of death rates to decline rapidly in recent years. Adverse factors associated with the growth of income may be nullifying beneficial effects of increases in the quantity and quality of care. If so, the view that we have reached a biological limit to the death rate is not valid.