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

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...

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Bibliographic Details
Published inJournal of macroeconomics Vol. 66; p. 103262
Main Authors Frankovic, Ivan, Kuhn, Michael, Wrzaczek, Stefan
Format Journal Article
LanguageEnglish
Published Elsevier Inc 01.12.2020
Subjects
Diffusion
Health care
Life-cycle model
Longevity
Medical innovation
Overlapping generations
Health care
Medical innovation
Life-cycle model
I11
D15
I12
J11
Longevity
O31
O41
Overlapping generations
J17
Diffusion
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ISSN0164-0704
1873-152X
1873-152X
DOI10.1016/j.jmacro.2020.103262

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Summary: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.
ISSN:0164-0704
1873-152X
1873-152X
DOI:10.1016/j.jmacro.2020.103262