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Medical care within an OLG economy with realistic demography

Ivan Frankovic (), Michael Kuhn and Stefan Wrzaczek

No 02/2016, ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy from Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON)

Abstract: We study the role of health care within a continuous time economy of overlapping generations subject to endogenous mortality. The economy consists of two sectors: final goods production and a health care sector, selling medical services to individuals. Individuals demand health care with a view to lowering mortality over their life-cycle. We derive the age-specific individual demand for health care based on the value of life as well as the resulting aggregate demand for health care across the population. We then characterize the general equilibrium allocation of this economy, providing both an analytical and a numerical representation. We study the allocational impact of a medical innovation both in the presence and absence of anticipation; and a temporary baby boom. We place particular emphasis on disentangling general equilibrium from partial equilibrium impacts and identifying the relevant transmission channels.

Keywords: demographic change; life-cycle model; health care; health policy; medical change; overlapping generations; value of life (search for similar items in EconPapers)
JEL-codes: D91 I11 I12 I18 J11 J17 O31 O41 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-age, nep-dge and nep-hea
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