Project Supplements

Why Have Health Expenditures as a Share of GDP Risen by So Much?

Charles I. Jones
Department of Economics, U.C. Berkeley and NBER

This research project will explore-both theoretically and quantitatively-the discovery of new medical devices, pharmaceuticals, and treatment procedures which may be responsible for a significant amount of the increase in health expenditures as a share of GDP. On the theoretical side, a model of technological change, health care, and life expectancy will be developed in order to characterize how the aggregate health expenditure share might change over time. This theory will then be examined quantitatively to gauge the fraction of the rise that can plausibly be accounted for by technical change. (Preliminary results along these lines can be found in a working paper available on the PI's web page, http://elsa.berkeley.edu/~chad.) Preliminary explorations suggest that technological change may easily be responsible for 50 percent or more of the rise in the spending share. Additional research along these lines will include an examination of social welfare, exploring whether or not the optimal time path of health expenditures also involve a rising share, and to what eventual level.