On the Golden Rule of capital accumulation under endogenous longevity

Journal article: Health spending obviously increase with capital per worker. This paper derives the optimal accumulation policy in such a context. The optimal accumulation rule depends on whether health spending improve consumption enjoyment, and on whether the planner adheres to an instantaneous welfarist view or to a complete life view. First, when the only role of health is to enhance longevity, we show that the capital per worker maximizing steady-state consumption per head is inferior to the standard Golden Rule. Moreover, the capital per worker maximizing steady-state consumption per head, when consumption efficiency depends on the health status, tends to exceed the optimal capital level under purely longevity-enhancing spending. Finally, when the planner adheres to a complete life view, the capital per worker maximizing steady-state expected lifetime consumption per head exceeds the optimal capital per worker under the instantaneous view.

Author(s)

David de La Croix, Grégory Ponthière

Journal
  • Mathematical Social Sciences
Date of publication
  • 2010
Keywords JEL
E13 E21 E22 I12
Keywords
  • Golden Rule
  • Health
  • Longevity
  • OLG models
Pages
  • 227-238
Version
  • 1
Volume
  • 59