Kiel Working Papers, Kiel Institute for World Economics
No 1428:
Optimal Health and Retirement Policies amid Population Aging
Gisela Hostenkamp and Michael Stolpe
Abstract: This paper develops a simple analytical framework in which
optimal health and retirement policies amid population aging can be
discussed. To be efficient, these policies must recognize and exploit the
dynamic complementarities between the timing of retirement, the size of
lifecycle labour income and pension payments and investments in health that
individuals make, for example, by purchasing medical care and that society
makes by advancing medical technology. We aim to show how the traditionally
separate areas of health and retirement policy can be coordinated to
achieve dynamic efficiency. Under fairly general assumptions, postponing
the age of retirement and greater health spending are shown to be
complements in the maximization of lifecycle utility. Mandatory retirement
and pension policies that change the constraints workers face can be used
to induce voluntary health investments by individuals and improve society’s
incentives to adopt new medical technology. Leaving a hitherto optimal
mandatory retirement age unchanged as new medical technologies improve the
efficacy of healthcare would be inefficient. The aggregate ability and
willingness to pay for medi¬cal care and technology will be greater, the
higher an economy’s per capita income, suggesting large welfare gains from
postponing the average age of retirement if investments in new medical
technology target the quality of life and raise the produc¬tivity of people
working past a long-established mandatory retirement age
Keywords: Medical technology, Longevity, Health policy, Retirement age; (follow links to similar papers)
JEL-Codes: I12,; I18,; J26; (follow links to similar papers)
46 pages, June 2008
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