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THE GOLDEN RULE OF LONGEVITY

Published online by Cambridge University Press:  03 January 2018

Marias H. Gestsson
Affiliation:
Aarhus University and University of Iceland
Gylfi Zoega*
Affiliation:
University of Iceland and University of London
*Corresponding
Address correspondence to: Gylfi Zoega, Department of Economics, University of Iceland, 101 Reykjavik, Iceland; e-mail: gz@hi.is.

Abstract

How much should society invest in medical care that extends the lives of the older generations? We derive a golden rule for the level of health care expenditures and find that the optimal level of life-extending health care expenditures should increase with rising productivity, increase with the retirement age, and also increase with the population growth rate if a higher growth rate lowers the ratio of retirees to working-age people sufficiently, while the effects of an improvement in medical technology are ambiguous. Moreover, we find that a market economy may be inefficient in terms of the provision of life-extending health care because an individual ignores the effect of his own longevity on the income of others.

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Articles
Copyright
Copyright © Cambridge University Press 2018 

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Footnotes

We are much indebted to two referees whose constructive comments helped us improve the paper.

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