The Value of Health and Longevity

We develop an economic framework for valuing improvements to health and life expectancy, based on individuals' willingness to pay. We then apply the framework to past and prospective reductions in mortality risks, both overall and for specific life-threatening diseases. We calculate (i) the social values of increased longevity for men and women over the 20th century; (ii) the social value of progress against various diseases after 1970; and (iii) the social value of potential future progress against various major categories of disease. The historical gains from increased longevity have been enormous. Over the 20th century, cumulative gains in life expectancy were worth over $1.2 million per person for both men and women. Between 1970 and 2000 increased longevity added about$3.2 trillion per year to national wealth, an uncounted value equal to about half of average annual GDP over the period. Reduced mortality from heart disease alone has increased the value of life by about $1.5 trillion per year since 1970. The potential gains from future innovations in health care are also extremely large. Even a modest 1 percent reduction in cancer mortality would be worth nearly$500 billion.

Fertility decline, baby boom and economic growth

We present new data documenting the secular decline in fertility in the states of the United States, the dramatic convergence in fertility, child schooling, parental schooling, survival probabilities. In addition we document the disparate nature of the Baby Boom in the United States. There were two different regimes, a large Baby Boom and a Small Baby Boom. The large Baby Boom regions also had the smallest increase in child schooling, whereas the small Baby Boom regions had the largest increase in child schooling. We present suggestive evidence that falling mortality risk is strongly positively correlated with falling fertility, rising education levels of parents is strongly negatively related to fetility, and that population density is negatively related to fertility. Finally we show the robust negative correlation of mortality risk on child schooling attainment, and positve correlation of population density and child schooling attainment.mortality; density; fertility decline; baby boom; economic growth

The Allocation of Talent: Implications for Growth

A country's most talented people typically organize production by others, so they can spread their ability advantage over a larger scale. When they start firms, they innovate and foster growth, but when they become rent seekers, they only redistribute wealth and reduce growth. Occupational choice depends on returns to ability and to scale in each sector, on market size, and on compensation contracts. In most countries, rent seeking rewards talent more than entrepreneurship does, leading to stagnation. Our evidence shows that countries with a higher proportion of engineering college majors grow faster; whereas countries with a higher proportion of law concentrators grow slower.

Industrialization and the Big Push

This paper explores Rosenstein-Rodman's (1943) idea that simultaneous industrialization of many sectors of the economy can be profitable for all of them, even when no sector can break even industrializing alone. We analyze this ides in the context of an imperfectly competitive economy with aggregate demand spillovers, and interpret the big push into industrialization as a move from a bad to a good equilibrium. We show that for two equilibria to exist, it must be the case that an industrializing firm raises the demand for products of other sectors through channels other than the contribution of its own profits to demand. For example, a firm paying high factory wages raises demand in other manufacturing sectors even if it loses money. In a similar vein, a firm investing today in order to produce at low cost tomorrow shifts income and hence demand for other goods into the future and so makes it more attractive for other firms also to invest today. Finally, an investing firm can benefit firms in other sectors if it uses a railroad or other shared infrastructure, and hence helps to defray the fixed cost of building the railroad. All these transmission mechanisms that help generate the big push seem to be of some relevance for less developed countries.

Building Blocks of Market Clearing Business Cycle Models

We compare "real business cycle" and increasing returns models of economic fluctuations. In these models, business cycles are driven by productivity changes resulting either from technology shocks or from crucial building blocks that give both types of models hope of fitting the data. These building blocks include durability of goods, specialized labor, imperfect credit and elastic labor supply. We also present new evidence on co-movement of both outputs sand labor inputs across sectors and on the increasing returns model is easier to reconcile with the data than the real business cycle model.

Why Has the Natural Rate of Unemployment Increased over Time?

macroeconomics, unemployment

Entry, Pricing and Product Design in an Initially Monopolized Market

We analyze entry, pricing and product design in a model with differentiated products. Under plausible conditions, entry into an initially monopolized market leads to higher prices for some, possibly all, consumers. Entry can induce a misallocation of goods to consumers, segment the market in a way that transfers surplus to producers and undermine aggressive pricing by the incumbent. Post entry, firms have strong incentives to modify product designs so as to raise price by strengthening market segmentation. Firms may also forego socially beneficial product improvements in the post-entry equilibrium, because they intensify price competition too much. Multi-product monopoly can lead to better design incentives than the non-cooperative pricing that prevails under competition.

Human Capital, Fertility, and Economic Growth

Our model of growth departs from both the Malthusian and neoclassical approaches by including investments in human capital. We assume, crucially, that rates of return on human capital investments rise, rather than, decline, as the stock of human capital increases, until the stock becomes large. This arises because the education sector uses human capital note intensively than either the capital producing sector of the goods producing sector. This produces multiple steady scares: an undeveloped steady stare with little human capital, low rates of return on human capital investments and high fertility, and a developed steady stats with higher rates of return a large, and, perhaps, growing stock of human capital and low fertility. Multiple steady states mean that history and luck are critical determinants of a country's growth experience.