Medical innovation and its diffusion: Implications for economic performance and welfare

Ivan Frankovic, Michael Kuhn and Stefan Wrzaczek

Journal of Macroeconomics, 2020, vol. 66, issue C

Abstract: We study the impact on economic performance and welfare of medical innovations and their endogenous diffusion. We construct a general equilibrium model with a medical sector and overlapping generations subject to endogenous mortality and calibrate it to reflect the development of the US economy and health care over the cardiac revolution during the 1980s and 1990s. By counterfactual analysis we find that (i) medical innovations have increased welfare without compromising GDP growth; (ii) there is a sizeable welfare loss due to the adoption lag involved with imperfect diffusion; and (iii) there is scope for Pareto improvement by way of subsidization of innovative health care.

Keywords: Diffusion; Health care; Life-cycle model; Longevity; Medical innovation; Overlapping generations (search for similar items in EconPapers)
JEL-codes: D15 I11 I12 J11 J17 O31 O41 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:66:y:2020:i:c:s0164070420301865

DOI: 10.1016/j.jmacro.2020.103262

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