Abstract
Changes in life expectancies perturb the balance of justice between the young and the old, prompting reallocation of income and health. The long-term consequences are difficult to predict. I report a case where greater life expectancies create greater health disparity between the generations.
This is a preview of subscription content, log in via an institution.
Buying options
Tax calculation will be finalised at checkout
Purchases are for personal use only
Learn about institutional subscriptionsNotes
- 1.
- 2.
Schelling (1984, Chapters 3 and 4) sees the old and the young generations trying to resolve conflict through bilateral bargaining. The conflict between the two selves is mediated by the social context in terms of conventions, ethics, laws, and entitlement programs, which penalize a failure to bargain in good faith on the part of any one generation.
- 3.
Here are some accounting details. First, Junior will transfer to Senior a total of $500,000 for retirement ($25,000 × 20), implying a saving rate of 25% ($500,000/$2,000,000). Second, if Junior does not save for retirement, then he pays 40% of the total income, or $800,000, in tax. In this case, the society siphons more than enough of the $2 million to cover Social Security payment to Senior, which is $10,000 a year for 20 years, or $200,000. Indeed the society would end up with a surplus of $600,000 as a result of Junior’s imprudence.
A Special Note: If Junior and Senior bargain to share both $2 million and 80 years of life expectancy, the terms of the Nash Solution will be exactly those in the “example” in the text: Junior would live for 60 years on $1.5 million; Senior would live for 20 years on $0.5 million. The proof is surprisingly tedious.
References
Akerlof, George A., and Robert J. Shiller. Animal Spirits. Princeton: Princeton University Press, 2009.
Ettner, Susan. “New Evidence on the Relationship Between Income and Health.” Journal of Health Economics, 15 (1), February 1996, pp. 67–85.
Kaplan, Matthew, Nancy Henkin, and Atsuko Kusano. Linking Lifetimes: A Global View of Intergenerational Exchange. Lanham: University Press of America, 2002.
Kinsella, Kevin. “Global Perspectives on the Demography of Aging.” In Jay Sokolovsky, ed. The Cultural Context of Aging: Worldwide Perspectives, 3rd ed. Santa Barbara, CA: Praeger, 2009, pp. 13–29.
Kotlikoff, Laurence, and Scott Burns. The Clash of Generations: Saving Ourselves, Our Kids, and Our Economy. Cambridge: MIT Press, 2014.
Laibson, David. “Golden Eggs and Hyperbolic Discounting.” Quarterly Journal of Economics, 62, May 1997, pp. 443–477.
Luce, R. Duncan, and Howard Raiffa. Games and Decisions. New York: Wiley, 1957.
Lynch, John, et al. “Is Income a Determinant of Population Health? Part 1. A Systematic Review.” Milbank Quarterly, 82, 2004, pp. 5–99.
Posner, Richard A. Aging and Old Age. Chicago: The University of Chicago Press, 1995.
Read, Daniel, and N. L. Read, “Time Discounting over the Lifespan.” Organizational Behavior and Human Decision Processes, 94, 2004, pp. 22–32.
Schelling, Thomas C. Choice and Consequence. Cambridge: Harvard University Press, 1984.
Sokolovsky, Jay. The Cultural Context of Aging: Worldwide Perspectives, 3rd ed. Santa Barbara, CA: Praeger, 2009.
Sunstein, Cass, and Richard Thaler. “Libertarian Paternalism.” American Economic Review, 93, 2003, pp. 175–179.
Thaler, Richard. “Mental Accounting and Consumer Choice.” Management Science, 4, 1985, pp. 199–214.
Thaler, Richard, and Hersh M. Shefrin. “An Economic Theory of Generation Control.” Journal of Political Economy, 89 (2), 1981, pp. 392–410.
Thaler, Richard, and Shlomo Benartzi. “Save More Tomorrow™: Using Behavioral Economics to Increase Employee Saving.” Journal of Political Economy, 112 (S1), 2004, pp. 164–187.
Wagstaff, Adam, and Eddy van Doorslaer. “Income Inequality and Health: What Does the Literature Tell Us?” Annual Review of Public Health, 21, 2000, pp. 543–567.
Author information
Authors and Affiliations
Corresponding author
Appendix
Appendix
The Nash Solution with a Fixed Total Resource to Share
Junior and Senior bargain for the biggest share of a resource. The Nash solution to the bargaining problem is the solution to the following mathematical program:
with respect to R y and R o , subject to a resource constraint \(R = R_{y} + R_{o}\), where
- R y :
-
resource for Junior (the young generation) if bargaining succeeds
- R o :
-
resource for Senior (the old generation) if bargaining succeeds
- T y :
-
Junior’s life expectancy
- T o :
-
Senior’s life expectancy
- c y :
-
Junior’s resource if bargaining fails
- c o :
-
Senior’s resource if bargaining fails
In the Nash Solution, Junior’s and Senior’s annual incomes are, respectively:
Case 1
How an increase in Junior’s life expectancy affects income distribution.
Case 2
How an increase in Senior’s life expectancy affects income distribution.
Rights and permissions
Copyright information
© 2018 The Author(s)
About this chapter
Cite this chapter
Lee, L.W. (2018). The Public Health Roulette. In: Behavioral Economics and Bioethics. Palgrave Advances in Behavioral Economics. Palgrave Pivot, Cham. https://doi.org/10.1007/978-3-319-89779-0_7
Download citation
DOI: https://doi.org/10.1007/978-3-319-89779-0_7
Published:
Publisher Name: Palgrave Pivot, Cham
Print ISBN: 978-3-319-89778-3
Online ISBN: 978-3-319-89779-0
eBook Packages: Economics and FinanceEconomics and Finance (R0)