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The public economics of increasing longevity

01 Mar 2012-Hacienda Publica Espanola (Servicio de Publicaciones)-Vol. 200, Iss: 200, pp 41-74
TL;DR: The challenges raised by increasing longevity are considered for the design of the social security system, pension policies, preventive health policies, the provision of long term care, as well as for long-run economic growth.
Abstract: One of the greatest success stories in our societies is that people are living longer, life expectancy at birth being now above 80 years. Whereas the lengthening of life opens huge opportunities for individuals if extra years are spent in prosperity and good health, it is however often regarded as a source of problems for policy-makers. The goal of this paper is to examine the key policy challenges raised by increasing longevity. For that purpose, we first pay attention to the representation of individual preferences, and to the normative foundations of the economy, and, then, we consider the challenges raised for the design of the social security system, pension policies, preventive health policies, the provision of long term care, as well as for long-run economic growth.
Citations
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TL;DR: A theory of optimal fertility behavior under mortality shocks and an empirical analysis using a sample of 39 Sub-Saharan African countries over the 1980–2004 period conclude in favor of an unambiguous negative effect of the HIV/AIDS epidemic on net fertility in SSA.
Abstract: This paper develops a theory of optimal fertility behavior under mortality shocks. In an OLG model, young adults determine their optimal fertility, labor supply and life-cycle consumption with both exogenous child and adult mortality risks. We show that a rise in adult mortality exerts an ambiguous effect on both net and total fertility in a general equilibrium framework, while child mortality shocks unambiguously lead to a rise in total fertility, leaving net fertility unchanged. We complement our theory with an empirical analysis using a sample of 39 Sub-Saharan African (SSA) countries over the 1980–2004 period, examining the overall effects of the child and adult mortality channels on both total and net fertility. We find child mortality to exert a robust, positive impact on total fertility but no impact on net fertility, whereas a rise in adult mortality is found to negatively influence both total and net fertility. Given the particular demographic profile of the HIV/AIDS epidemic (killing essentially young, active adults), we then conclude in favor of an unambiguous negative effect of the HIV/AIDS epidemic on net fertility in SSA.

86 citations

Posted Content
TL;DR: It is shown that homophily can facilitate diffusion from a small initial seed of adopters, and the conditions under which a behavior or disease diffuses and becomes persistent in the population are identified.
Abstract: We study how a behavior (an idea, buying a product, having a disease, adopting a cultural fad or a technology) spreads among agents in an a social network that exhibits segregation or homophily (the tendency of agents to associate with others similar to themselves). Individuals are distinguished by their types (e.g., race, gender, age, wealth, religion, profession, etc.) which, together with biased interaction patterns, induce heterogeneous rates of adoption. We identify the conditions under which a behavior diffuses and becomes persistent in the population. These conditions relate to the level of homophily in a society, the underlying proclivities of various types for adoption or infection, as well as how each type interacts with its own type. In particular, we show that homophily can facilitate diffusion from a small initial seed of adopters.

76 citations

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TL;DR: The Golden Rule of capital accumulation in a Chakraborty-type economy, i.e. a two-period OLG economy where longevity is endogenous, is derived and it is shown that the capital per worker maximizing steady-state consumption per head is inferior to the Golden Rule capital level prevailing under exogenous longevity.
Abstract: This note derives the Golden Rule of capital accumulation in a Chakraborty-type economy, i.e. a two-period OLG economy where longevity is endogenous. It is shown that the capital per worker maximizing steady-state consumption per head is inferior to the Golden Rule capital level prevailing under exogenous longevity. We characterize also the Lifetime Golden Rule, that is, the capital per worker maximizing steady-state expected lifetime consumption per head, and show that this tends to exceed the standard Golden Rule capital level.

62 citations

Posted Content
TL;DR: It is argued that the failure of the private market to fully insure long-term care is a result of large intertemporal variability in the cost of long- term care, which affects everyone in a pool and therefore cannot be diversified within a cohort.
Abstract: This paper examines the failure of the private market to fully insure long-term care. I argue that the failure is a result of large intertemporal variability in the cost of long-term care. Unlike variability in cross section use, variability in the cost of care affects everyone in a pool and therefore cannot be diversified within a cohort. Further, since costs are serially correlated, the cost risk cannot be diversified across cohorts. Estimates suggest that the standard deviation of cost uncertainty is on the order of 4 to 14 percent for an average long-term care policy. In response to this cost risk, most long-term care policies do not insure real benefits. Policies generally pay a fixed nominal amount for care, which is updated using predetermined nominal rules. Many policies also have lifetime maximum payments and other restrictions on aggregate risk bearing by the insurer. The lack of complete long-term care insurance may be one explanation for the low rate of purchase of long-term care policies.

60 citations

Journal ArticleDOI
TL;DR: The logic of Arrow's theorem of the deductible, i.e. that it is optimal to focus insurance coverage on the states with largest expenditures, remains at work in a model with ex post moral hazard, resulting in the same indemnities as a contract with full insurance above a variable deductible positively related to the elasticity of medical expenditures with respect to the insurance rate.
Abstract: We show that the logic of Arrow's theorem of the deductible, i.e. that it is optimal to focus insurance coverage on the states with largest expenditures, remains at work in a model with ex post moral hazard. The optimal insurance contract takes the form of a system of "implicit deductibles", i.e. it results in the same indemnities as a contract with full insurance above a variable deductible positively related to the elasticity of medical expenditures with respect to the insurance rate. In a model with an explicit stop-loss arrangement, i.e. with a predefined ceiling on the annual expenses of the insured, this stop-loss takes the form of a deductible, i.e. there is no reimbursement for expenses below the stop-loss amount. One motivation to have some insurance below the deductible arises if regular health care expenditures in a situation of standard health have a negative effect on the probability of getting into a state with large medical expenses.

43 citations

References
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Book
01 Jan 1984
TL;DR: In this paper, the author claims that we have a false view of our own nature and that it is often rational to act against our own best interests, that most of us have moral views that are directly self-defeating, and that when we consider future generations the conclusions will often be disturbing.
Abstract: This book challenges, with several powerful arguments, some of our deepest beliefs about rationality, morality, and personal identity. The author claims that we have a false view of our own nature; that it is often rational to act against our own best interests; that most of us have moral views that are directly self-defeating; and that, when we consider future generations the conclusions will often be disturbing. He concludes that non-religious moral philosophy is a young subject, with a promising but unpredictable future.

4,518 citations

Journal ArticleDOI

3,798 citations


"The public economics of increasing ..." refers methods in this paper

  • ...After the work by Allais (1953) on the independence axiom and its widespread violation, it is clear that this modelling of preferences is a simpli - cation, but we will, for the sake of simplicity, rely on that simple formulation.12 Temporal welfare is represented a standard temporal utility…...

    [...]

Book
01 Jan 1879
TL;DR: Burns and Hart as mentioned in this paper published a critical edition of the works and correspondence of Jeremy Bentham (1748-1832) under the supervision of the Bentham Committee of University College London.
Abstract: The new critical edition of the works and correspondence of Jeremy Bentham (1748-1832) is being prepared and published under the supervision of the Bentham Committee of University College London. In spite of his importance as jurist, philosopher, and social scientist, and leader of the Utilitarian reformers, the only previous edition of his works was a poorly edited and incomplete one brought out within a decade or so of his death. Eight volumes of the new Collected Works, five of correspondence, and three of writings on jurisprudence, appeared between 1968 and 1981, published by the Athlone Press. Further volumes in the series since then are published by Oxford University Press. The overall plan and principles of the edition are set out in the General Preface to The Correspondence of Jeremy Bentham, vol. 1, which was the first volume of the Collected Works to be published. An Introduction to the Principles of Morals and Legislation, Jeremy Bentham's best-known work, is a classic text in modern philosophy and jurisprudence. First published in 1789, it contains the important statement of the foundations of utilitarian philosophy and a pioneering study of crime and punishment, both of which remain at the heart of contemporary debates in moral and political philosophy, economics, and legal theory. Printed here in full is the definitive edition, edited by the distinguished scholars J. H. Burns and H. L. A. Hart. An introductory essay by Hart, first published in 1982 and a widely acknowledged classic in its own right, is reprinted here. It contains an important analysis of Bentham's principle of utility, theory of action, and an account of the relationship between law and morality. A new introduction by the leading Bentham scholar F. Rosen, specially written for this Clarendon Paperback edition, provides students with a helpful survey of Bentham's main ideas and an extensive bibliographical study of recent critical work on Bentham. Professor Rosen's essay also contains a new analysis of the principle of utility in Bentham's philosophy which is compared with its use in Hume and J. S. Mill.

3,555 citations