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Medical care within an OLG economy with realistic demography

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  • Frankovic, Ivan
  • Kuhn, Michael
  • Wrzaczek, Stefan

Abstract

We study the role of health care within a continuous time economy of overlapping generations subject to endogenous mortality. The economy consists of two sectors: final goods production and a health care sector, selling medical services to individuals. Individuals demand health care with a view to lowering mortality over their life-cycle. We derive the age-specific individual demand for health care based on the value of life as well as the resulting aggregate demand for health care across the population. We then characterize the general equilibrium allocation of this economy, providing both an analytical and a numerical representation. We study the allocational impact of a medical innovation both in the presence and absence of anticipation; and a temporary baby boom. We place particular emphasis on disentangling general equilibrium from partial equilibrium impacts and identifying the relevant transmission channels.

Suggested Citation

  • Frankovic, Ivan & Kuhn, Michael & Wrzaczek, Stefan, 2016. "Medical care within an OLG economy with realistic demography," ECON WPS - Working Papers in Economic Theory and Policy 02/2016, TU Wien, Institute of Statistics and Mathematical Methods in Economics, Economics Research Unit.
  • Handle: RePEc:zbw:tuweco:022016
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    Cited by:

    1. Kuhn, Michael & Prettner, Klaus, 2016. "Growth and welfare effects of health care in knowledge-based economies," Journal of Health Economics, Elsevier, vol. 46(C), pages 100-119.
    2. Bloom, David E. & Chen, Simiao & Kuhn, Michael & McGovern, Mark E. & Oxley, Les & Prettner, Klaus, 2020. "The economic burden of chronic diseases: Estimates and projections for China, Japan, and South Korea," The Journal of the Economics of Ageing, Elsevier, vol. 17(C).
    3. David E. Bloom & Michael Kuhn & Klaus Prettner, 2016. "Africa’s Prospects for Enjoying a Demographic Dividend," VID Working Papers 1604, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna.
    4. Frankovic, Ivan, 2017. "The impact of climate change on health expenditures," ECON WPS - Working Papers in Economic Theory and Policy 02/2017, TU Wien, Institute of Statistics and Mathematical Methods in Economics, Economics Research Unit.

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    More about this item

    Keywords

    demographic change; life-cycle model; health care; health policy; medical change; overlapping generations; value of life;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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