Frank Chaloupka and Richard M. Peck 1 Introduction In this chapter we extend the framework of Murphy and Topel (2003a) and Nordhaus (2003) on the benefits of medical research. Their point of departure is the striking increase in life expectancy in the United States over the last 50 years. In 1970, average life expectancy at birth was 70.8 and it was 77.8 years in 2004, a gain of about a seven years. Attributing the increase to improvements in health knowledge, medical practice and technology, they present estimates suggesting that if the dollar value of this increase is properly taken into account, medical research has been enormously productive. Indeed, Becker (2007) argues that, given underlying willingness to pay, the increase in life expectancy may be the largest single factor in the rise of Western living standards. Because life expectancy increases are not captured by standard national income accounting, this important contribution to higher living standards is hidden or at least underestimated. The work of Murphy and Topel and Nordhaus set the record straight and they provide compelling estimates that the annual monetary value of the change in average life expectancy over the last 30 to 40 years is several trillion dollars. The next step in this line of research is to parse out the contributions of particular innovations to the increased life expectancy in the United States. The approach of Murphy and Topel has been adapted to improvements in the treatment of cardiovascular diseases by Cutler and Kadiyala (2003). But the...
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