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Growth and Welfare under Endogenous Lifetime

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Abstract

We develop a perpetual youth model to investigate how longevity affects economic growth and welfare. Life expectancy is determined by individuals’ investments in healthcare. We find that improvements in the healthcare technology always increase the steady state growth rate. Although the effect is small, even for large increases in longevity, welfare gains may be substantial depending on the type of the technological improvement. We identify two externalities associated with healthcare investments and provide a condition when healthcare expenditures are inefficiently low in the market equilibrium. Finally, we discuss our results with respect to alternative spillover specifications in the production sector.

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Bibliographic Info

Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 10/137.

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Length: 43 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:eth:wpswif:10-137

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Keywords: economic growth; endogenous longevity; healthcare expenditures; healthcare technology; quality-quantity trade-off;

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Cited by:
  1. Andersen, Torben M & Bhattacharya, Joydeep, 2013. "A Dynamic Efficiency Rationale for Public Investment in the Health of the Young," Staff General Research Papers 35872, Iowa State University, Department of Economics.
  2. Klaus Prettner, 2009. "Population ageing and endogenous economic growth," Working Papers 0908, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna.
  3. Kuhn, Michael & Prettner, Klaus, 2013. "Growth and Welfare Effects of Health Care in Knowledge Based Economies," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79970, Verein für Socialpolitik / German Economic Association.

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