Ch Changes in the level of life expectancy have important implications for individual and aggregate economic performance. Life expectancy affects economic development, growth, fertility rates, human capital investment, and incentives for retirement claims. From the governmental and policy viewpoint, changes in life expectancy have implications for public finance. Gradstein and Kaganovich conclude that increasing life expectancy increases public funding of education and economic growth. (2004). Cremer, Lozachmeur, and Pestieau contend that premature retirement "puts pressure on the financing of healthcare and pension schemes and this pressure is made worse by growing longevity" (2004).
Life expectancy or longevity can be more broadly viewed as the health of individuals in the economy. In Shaw, Horrace, and Vogel’s paper, “The Determinants of Life Expectancy: An Analysis of the OECD Health Data” they attempts to create production function for health. Their study distinguish life expectancies by age and by gender; includes a measure of fruit and vegetable consumption; and uses a unique measure of tobacco consumption than other models. The three (SH&V) derive data from the OECD Health Data 2000 database (data on the health care systems of 29 of the 30 OECD countries). The database comprises over 1000 indicators from 1960 to 1999. We assume the US to be an OECD country.
To increase life expectancy substantially, a significant amount of money would need to be spent on pharmaceutical expenditures. The paper analyzes the elasticity of pharmaceutical expenditures and the affects on longevity. In their study the average expenditure on pharmaceuticals is $171 for a male over 40. Data indicates that doubling annual pharmaceutical expenditures from the sample average of $171 per capita increases life expectancy by one year for males at age, with decreasing returns as age increases. In order for males ages 40, 60, and 65 years to increase life expectancy by a year,...