The Golden Rule of Longevity

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.

Longevity Adjustment of Retirement Age and Intragenerational Inequality

“…In this section, we explore the implications of differences in longevity across groups and lifetime utility when there is a common pension age for the whole population. We set up an overlapping generations (OLG) model, stated in continuous time, and with a heterogeneous population based on Andersen and Gestsson (2016) and Gestsson and Zoega (2018). As in these two papers, we depart from Blanchard (1985) by assuming that the probability of dying increases with age.…”

Longevity, Retirement and Intra-Generational Equity

“…In this section, we explore the implications of differences in longevity across groups and lifetime utility when there is a common retirement age for the whole population. We set up a overlapping generations (OLG), stated in continuous time, and with a heterogeneous population based on Andersen and Gestsson (2016) and Gestsson and Zoega (2018). We, as well as these two papers, depart from Blanchard (1985) by assuming that the probability of dying increases with age.…”