TY - JOUR
T1 - Longevity-induced vertical innovation and the tradeoff between life and growth
AU - Baldanzi, Annarita
AU - Prettner, Klaus
AU - Tscheuschner, Paul
PY - 2019
Y1 - 2019
N2 - We analyze the economic growth effects of rising longevity in a framework of endogenous growth driven by quality-improving innovations. A rise in longevity increases savings and thereby places downward pressure on the market interest rate. Since the monopoly profits generated by a successful innovation are discounted by the endogenous market interest rate, this raises the net present value of innovations, which, in turn, fosters R&D investments. The associated increase in the employment of scientists leads to faster technological progress and a higher long-run economic growth rate. From a welfare perspective, the direct effect of an increase in life expectancy tends to be larger than the indirect effect of the induced higher consumption due to faster economic growth. Consequently, the debate on rising health care expenditures should not be predominantly based on the growth effects of health care.
AB - We analyze the economic growth effects of rising longevity in a framework of endogenous growth driven by quality-improving innovations. A rise in longevity increases savings and thereby places downward pressure on the market interest rate. Since the monopoly profits generated by a successful innovation are discounted by the endogenous market interest rate, this raises the net present value of innovations, which, in turn, fosters R&D investments. The associated increase in the employment of scientists leads to faster technological progress and a higher long-run economic growth rate. From a welfare perspective, the direct effect of an increase in life expectancy tends to be larger than the indirect effect of the induced higher consumption due to faster economic growth. Consequently, the debate on rising health care expenditures should not be predominantly based on the growth effects of health care.
U2 - 10.1007/s00148-018-0724-x
DO - 10.1007/s00148-018-0724-x
M3 - Journal article
SN - 0933-1433
VL - 32
SP - 1293
EP - 1313
JO - Journal of Population Economics
JF - Journal of Population Economics
ER -