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Medical progress, demand for health care, and economic performance

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

Abstract

We study medical progress within an economy of overlapping generations subject to endogenous mortality. Individuals demand health care with a view to lowering mortality over their life-cycle. We characterise the individual optimum and the general equilibrium of the economy and study the impact of improvements in the effectiveness of health care. We find that general equilibrium effects dampen strongly the increase in health care usage following medical innovation. Moreover, an increase in savings offsets the negative impact on GDP per capita of a decline in the support ratio.

Suggested Citation

  • Frankovic, Ivan & Kuhn, Michael & Wrzaczek, Stefan, 2017. "Medical progress, demand for health care, and economic performance," ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 08/2017, Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON).
  • Handle: RePEc:zbw:tuweco:082017
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    Cited by:

    1. Frankovic, Ivan & Kuhn, Michael, 2018. "Health insurance, endogenous medical progress, and health expenditure growth," ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 01/2018, Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON).
    2. Bloom, David E. & Kuhn, Michael & Prettner, Klaus, 2018. "Health and Economic Growth," IZA Discussion Papers 11939, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    life-cycle model; longevity; health care; medical innovation; overlapping generations; value of life;

    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
    • 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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