This dissertation can be divided into two parts. The first part is motivated by two trends that occurred during the second half of the twentieth century. First, there was a persistent rising trend in medical spending. Second, there was a significant increase in longevity. Chapter 1 presents a model in which a combination of technological progress in medical treatment and rising incomes can explain these two. The main theme of this chapter is that the rapid growth in health care spending was not driven by factors associated with market structures or insurance opportunities, but by factors underlying the production and accumulation of health, namely improvements in medical treatment and rising incomes. According to this model, these two factors can explain all of the increase in health care spending and more than 60% of the increase in life expectancy at age 25 during the period 1950-2001. The next question considered is whether or not it is efficient to allocate so many resources to the health care sector. To answer this question, a benchmark for welfare analysis is constructed in Chapter 2. This is then compared to the model presented in Chapter 1. An equivalent variation measure is used to quantify the welfare differences between the two. One major finding of the second chapter is that, with improvements in medical treatment and rising incomes, a large increase in medical spending can be obtained even in the first-best scenario. The second part of this dissertation is motivated by two other phenomena that happened over the period 1910-1970. First, a rising fraction of the urban population chose to live far away from the city center. Second, there was a significant increase in car-ownership. he objective of Chapter 3 is to assess quantitatively the relationship between the two. To achieve this, a simple model is constructed in which people can choose where to live and whether or not to purchase a car. The calibrated version of the model is able to explain about 86% of car-ownership in 1970 and about 77% of the suburbanization trend during the period 1910-1970.
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