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Approaches to Estimating the Health State Dependence of the Utility Function

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  • Amy Finkelstein
  • Erzo F. P. Luttmer
  • Matthew J. Notowidigdo

Abstract

If the marginal utility of consumption depends on health status, this will affect the economic analysis of a number of central problems in public finance, including the optimal structure of health insurance and optimal life cycle savings. In this paper, we describe the promises and challenges of various approaches to estimating the effect of health on the marginal utility of consumption. Our basic conclusion is that while none of these approaches is a panacea, many offer the potential to shed important insights on the nature of health state dependence.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.99.2.116
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 99 (2009)
Issue (Month): 2 (May)
Pages: 116-21

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Handle: RePEc:aea:aecrev:v:99:y:2009:i:2:p:116-21

Note: DOI: 10.1257/aer.99.2.116
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References

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  1. Rust, J., 1994. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Working papers 9430, Wisconsin Madison - Social Systems.
  2. Edwards, Ryan D, 2008. "Health Risk and Portfolio Choice," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 472-485.
  3. Alma Cohen & Liran Einav, 2007. "Estimating Risk Preferences from Deductible Choice," American Economic Review, American Economic Association, vol. 97(3), pages 745-788, June.
  4. Mariacristina De Nardi & Eric French & John Bailey Jones, 2005. "Differential mortality, uncertain medical expenses, and the saving of elderly singles," Working Paper Series WP-05-13, Federal Reserve Bank of Chicago.
  5. Amy Finkelstein & Erzo F. P. Luttmer & Matthew J. Notowidigdo, 2013. "What Good Is Wealth Without Health? The Effect Of Health On The Marginal Utility Of Consumption," Journal of the European Economic Association, European Economic Association, vol. 11, pages 221-258, 01.
  6. Sloan, Frank A. & Kip Viscusi, W. & Chesson, Harrell W. & Conover, Christopher J. & Whetten-Goldstein, Kathryn, 1998. "Alternative approaches to valuing intangible health losses: the evidence for multiple sclerosis1," Journal of Health Economics, Elsevier, vol. 17(4), pages 475-497, August.
  7. Viscusi, W Kip & Evans, William N, 1990. "Utility Functions That Depend on Health Status: Estimates and Economic Implications," American Economic Review, American Economic Association, vol. 80(3), pages 353-74, June.
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Citations

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Cited by:
  1. Christophe Courbage & Peter Zweifel, 2011. "Two-sided intergenerational moral hazard, long-term care insurance, and nursing home use," Journal of Risk and Uncertainty, Springer, vol. 43(1), pages 65-80, August.
  2. Raj Chetty & Amy Finkelstein, 2012. "Social Insurance: Connecting Theory to Data," NBER Working Papers 18433, National Bureau of Economic Research, Inc.
  3. De Donder, Philippe & Pestieau, Pierre, 2013. "Private, social and self-insurance for long-term care in the presence of family help: A political economy analysis," CEPR Discussion Papers 9587, C.E.P.R. Discussion Papers.
  4. Bonsang Eric & Klein Tobias J., 2011. "Retirement and Subjective Well-Being," ROA Research Memorandum 005, Maastricht University, Research Centre for Education and the Labour Market (ROA).
  5. Julien Hugonnier & Florian Pelgrin & Pascal St-Amour, 2010. "A structural analysis of the health expenditures and portfolio choices of retired agents," Swiss Finance Institute Research Paper Series 10-29, Swiss Finance Institute.
  6. Christophe Courbage & David Crainich, 2012. "More on the optimal demand for long-term care insurance," Working Papers 2012-ECO-17, IESEG School of Management.
  7. Arik Levinson, 2009. "Valuing Public Goods Using Happiness Data: The Case of Air Quality," NBER Working Papers 15156, National Bureau of Economic Research, Inc.
  8. Thomas Crossley & Hamish Low & Cormac O'Dea, 2012. "Household consumption through recent recessions," IFS Working Papers W12/13, Institute for Fiscal Studies.
  9. Octave Jokung & Serge Macé, 2013. "Long-term health investment when people underestimate their adaptation to old age-related health problems," The European Journal of Health Economics, Springer, vol. 14(6), pages 1003-1013, December.
  10. van Hoorn, André & Maseland, Robbert, 2010. "Cultural differences between East and West Germany after 1991: Communist values versus economic performance?," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 791-804, December.
  11. Martin Browning & Thomas Crossley & Melanie Lührmann, 2012. "Durable Purchases over the Later Life Cycle," Koç University-TUSIAD Economic Research Forum Working Papers 1213, Koc University-TUSIAD Economic Research Forum.
  12. Ada Ferrer-i-Carbonell, 2013. "Happiness economics," SERIEs, Spanish Economic Association, vol. 4(1), pages 35-60, March.

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