In this paper, we develop and apply an economic framework for valuing improvements in health, based on Murphy and Topel (2002). Past improvements in health and longevity have had enormous social value. By our estimation, the contributions to the economic well-being of longer lifetimes have been worth about $73 trillion since 1970, or about $2.6 trillion per year. The average 50-year-old man gained additional life-years worth roughly $350,000, while a 50-year-old woman gained about $180,000. Looking ahead, prospective benefits from further progress are also large: a 10 percent reduction in mortality from heart disease would be worth over $4 trillion, and even a 1 percent reduction in cancer deaths would be worth over $400 billion. These values suggest that public investments in basic medical research may yield huge social returns, but distortions in the allocation of medical care and in research incentives may yield future benefits that are smaller than the costs of achieving them. While the average net health benefits of increased medical expenditures are large, costs may have greatly exceeded benefits in certain periods and age groups.


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pp. S108-S128
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