Koichi Hamada and Lakshmi K. Raut1 In order to go astray into the mountain sooner, I destroyed myself my teeth by rocks to look older. (Shichiro Fukasawa, Narayamabushi-ko (Elegy for the Old: The Tune of Narayama, 1968)) We are told, in the future, two of young people have to take care of one old person. (Sawako Ariyoshi, The Twilight Years, 1972) You have begot me, bred me, lov’d me. I return those duties back as are right ﬁt. (William Shakespeare, King Lear, Cordelia: Act 1, Scene 1, 95)2 1. INTRODUCTION Care of the elderly presents a diﬃcult challenge to the developed countries where the population is rapidly ageing. Costs of medical care of the elderly will grow more than proportionally as the ageing proceeds. To nurse the elderly, human labor services are essential and cannot easily be substituted by machines or tools. The medical cost and labor cost of elderly care can have strong macroeconomic eﬀects on household savings and current account balances of an ageing economy such as Japan with rising life expectancy and a falling fertility rate. We present a prototype model of overlapping generations to study these macroeconomic eﬀects under diﬀerent assumptions about the substitutability of the present consumption of goods and the future consumption of nursing services, and about the substitutability of machines and human nurses in the elderly nursing sector. The model will shed light on the policy debate on whether to import foreign labor services or to invest capital...
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