Whereas existing OLG models with endogenous longevity neglect the impact of environmental quality on mortality, this paper studies the design of the optimal public intervention in a two-period OLG model where longevity is influenced positively by health expenditures, but negatively by pollution due to production. It is shown that if individuals, when choosing how much to spend on health, do not internalize the impact of their decision on environmental quality (i.e. the space available for each person), the decentralization of the social optimum requires a tax not only on capital income, but also, on health expenditures. The sensitivity of the optimal second-best public intervention is also explored numerically.
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A premature death unexpectedly brings a life and a career to their end, leading to substantial welfare losses. We study the retirement decision in an economy with risky lifetime, and compare the laissez-faire with egalitarian social optima. We consider two social objectives: (1) the maximin on expected lifetime welfare (ex ante), allowing for a compensation for unequal life expectancies; (2) the maximin on realized lifetime welfare (ex post ), allowing for a compensation for unequal lifetimes. The latter optimum involves, in general, decreasing lifetime consumption pro…les, as well as raising the retirement age, unlike the ex ante egalitarian optimum. This result is robust to the introduction of unequal life expectancies and unequal productivities. Hence, the postponement of the retirement age can, quite surprisingly, be defended on egalitarian grounds -although the conclusion is reversed when mortality strikes only after retirement.
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