Sources of U.S. Longevity Increase, 1960 - 1997

33 Pages Posted: 21 Mar 2001

See all articles by Frank R. Lichtenberg

Frank R. Lichtenberg

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2000

Abstract

Between 1960 and 1997, life expectancy at birth of Americans increased approximately 10% from 69.7 to 76.5 years and it has been estimated that the value of life extension during this period nearly equaled the gains in tangible consumption. While life expectancy has tended to increase, there have been substantial fluctuations in the rate of increase. In this paper we investigate whether an aggregate health production function can help to explain the annual time-series behavior of U.S. longevity since 1960. We view longevity as the output of the health production function, and output fluctuations as the consequence of fluctuations in medical inputs (expenditure) and technology. We estimate longevity models using annual U.S. time-series data on life expectancy, health expenditure, and medical innovation. Reliable annual data are available for only one type of innovation new drugs but pharmaceutical R&D accounts for a significant fraction of total biomedical research. The empirical analysis provides strong support for the hypothesis that both medical innovation (in the form of new drug approvals) and expenditure on medical care (especially public expenditure) contributed to longevity increase during the period 1960-1997. Increased drug approvals and health expenditure per person jointly explain just about 100% of the observed long-run longevity increase. The estimates provide strong evidence against the null hypothesis that public health expenditure has no effect on longevity, but not against the null hypothesis that private health expenditure has no effect on longevity. This is at least partly attributable to the fact that public health expenditure exhibited much greater variability during the sample period than private health expenditure. The estimates imply that the medical expenditure needed to gain one life-year is about $11,000, and that the pharmaceutical R&D expenditure needed to gain one life-year is about $1,345. This suggests that increased development of new drugs may be a more cost-effective way of increasing life expectancy than increased medical expenditure in general. Previous researchers have estimated that the average value of a life-year is approximately $150,000. This figure implies that the benefit-cost ratio of general medical expenditure is 13.6, and that the ratio for pharmaceutical R&D exceeds 100.

JEL Classification: H5, I1, O3

Suggested Citation

Lichtenberg, Frank R., Sources of U.S. Longevity Increase, 1960 - 1997 (December 2000). CESifo Working Paper Series No. 405. Available at SSRN: https://ssrn.com/abstract=263113

Frank R. Lichtenberg (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
504 Uris Hall, Dept. of Finance & Economics
New York, NY 10027
United States
212-854-4408 (Phone)
212-316-9219 (Fax)

HOME PAGE: http://https://www8.gsb.columbia.edu/cbs-directory/detail/frl1

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
307
Abstract Views
3,273
rank
81,501
PlumX Metrics