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Pricing and R&D When Consumption Affects Longevity
RAND Journal of Economics
We analyze goods for which the amount of consumption determines the duration of consumption, focusing on health-related consumption that affects longevity. The characteristics of the demand for such goods lead to unique predictions about private pricing and investment in R&D as well as the fiscal effects of public subsidies and taxes. In particular, we argue that there is an R&D feedback for such goods when the market size expands through longevity-induced population growth. As developed countries devote large shares of public spending to old-age programs that may themselves affect longevity, e.g., Medicare and Social Security in the United States, these effects may become increasingly important. [Authors]
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