The second half of the twentieth century recorded a rapid growth in health care spending and a significant increase in life expectancy. This paper hypothesizes that technological progress in medical treatment, combined with rising incomes, are the driving forces behind these two trends. Using a stochastic, multi-period overlapping-generations model as the analytical vehicle, this paper argues that the rapid growth in medical spending is not driven by factors associated with market structures or insurance opportunities, but instead by factors underlying the production and accumulation of health. According to this model, improvements in medical treatment and rising incomes can explain all of the increase in medical spending and more than 60% of the increase in life expectancy at age 25 during the second half of the twentieth century.
In 1910 the average American city was a small and densely populated place and less than one percent of Americans owned a car. By 1970, almost every family in the U.S. owned at least one automobile. Not only did city size grow between 1910 and 1970, but city population became more evenly spread around the city center: suburbanization. A model of a linear city is developed in which agents choose both whether or not to own a car, and where to live. Focusing on the period 1910 to 1970, the model is calibrated to match the fall in automobile prices, the rise in real incomes, and the rise in the cost of commuting by public transportation relative to commuting by car. Under the baseline calibration the model predicts both a rise in car-ownership and decentralization.
*This paper was previously circulated with the title “Suburbanization and the Automobile.”
Superneutrality, Indeterminacy and Endogenous Growth
(joint with Chong K. Yip) Journal of Macroeconomics, 27 (2005) p.579-595.
In this paper, we explore the possibility of having money as a source of indeterminacy in endogenous growth models. We adopt the simple Ak model of endogenous growth to be the main analytical vehicle whose balanced growth paths do not display local indeterminacy. Money is introduced via either a general cash-in-advance (CIA) constraint or a pecuniary transaction costs (PTC) technology. It is shown that local indeterminacy of the dynamics is due to the presence of an intertemporal substitution effect on capital accumulation that works against and dominates the conventional inflation effect of Tobin (1965). If money is growth-rate superneutral, then the intertemporal substitution effect is absent so that local indeterminacy cannot occur. Finally, the strength of the intertemporal substitution effect depends positively on the intertemporal elasticity of substitution in consumption.