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Pricing and R&D When Consumption Affects Longevity

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  • Pierre-Yves Geoffard
  • Tomas Philipson

Abstract

We analyze goods for which the amount of consumption determines the duration of consumption, focusing on health-related consumption that affects longevity. The characteristics of the demand for such goods lead to unique predictions about private pricing and investment in R&D as well as the fiscal effects of public subsidies and taxes. In particular, we argue that there is an R&D feedback for such goods when the market size expands through longevity-induced population growth. We also argue that as developed countries devote large shares of public spending to old-age programs that may themselves affect longevity, e.g., Medicare and Social Security, the nonstandard effects that these programs introduce may become increasingly important.

Suggested Citation

  • Pierre-Yves Geoffard & Tomas Philipson, 2002. "Pricing and R&D When Consumption Affects Longevity," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 85-95, Spring.
    • Handle: RePEc:rje:randje:v:33:y:2002:i:spring:p:85-95
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    Cited by:

    1. Anupam Jena & Casey Mulligan & Tomas J. Philipson & Eric Sun, 2008. "The Value of Life in General Equilibrium," NBER Working Papers 14157, National Bureau of Economic Research, Inc.
    2. Anup Malani & Tomas J. Philipson, 2011. "Can Medical Progress be Sustained? Implications of the Link Between Development and Output Markets," NBER Working Papers 17011, National Bureau of Economic Research, Inc.

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