What Is the Economic Value of Japanese Longevity?

Because of substantial improvements in the health of its citizens during the thirty-five years from 1970 to 2005, Japan is noted among countries with the greatest average life spans. In this article, the author attempts to quantify the economic value of this longevity by estimating willingness-to-pay (WTP) with respect to the drop in mortality rates during that period using Murphy and Topel (2003, 2006). The results suggest that the economic value is as much as ¥165 trillion per year as of 2005 or about 30 percent of the gross domestic product (GDP). By changing the discount rate and utility function parameters, the author also attempts to show the values obtained for WTP. He provides an analysis of the impact of demographics on WTP, and in particular, shows how the population increase from 1970, with lower birthrates and an aging population, has increased WTP on an annualized basis by ¥30 trillion and ¥20 trillion, respectively. He also suggests that looking ahead to 2040, WTP will likely decrease to ¥60 trillion due to limited additional improvements in survival rates and a declining population. Health expenditures attributed to the decrease in mortality rates are expected to be below one-tenth of WTP, suggesting that the increase in health care expenditures up to now are justifiable given a cost—benefit analysis.