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Optimism, pessimism and the compensating income variation of cardiovascular disease: A two-tiered quality of life stochastic frontier model

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  • Groot, Wim
  • van den Brink, Henriette Maassen

Abstract

Self-reported measures of life satisfaction may be biased by optimistic or pessimistic dispositions of respondents. In this paper we view life satisfaction as stochastic and estimate a two-tiered quality of life stochastic frontier model to account for upward and downward biases in self-reported quality of life questions. Using the British Household Panel Survey 1995, we interpret the two one-sided errors to represent optimism and pessimism, respectively. The results suggest that the realistic values of life satisfaction are closer to the pessimistic values than to the optimistic ones. It is further found that men are relatively more optimistic and less pessimistic than women. Cardiovascular disease makes people both less optimistic and less pessimistic. The results are used to calculate the compensating income variation (CIV) of cardiovascular disease. It is found that the CIV is substantial.

Suggested Citation

  • Groot, Wim & van den Brink, Henriette Maassen, 2007. "Optimism, pessimism and the compensating income variation of cardiovascular disease: A two-tiered quality of life stochastic frontier model," Social Science & Medicine, Elsevier, vol. 65(7), pages 1479-1489, October.
    • Handle: RePEc:eee:socmed:v:65:y:2007:i:7:p:1479-1489
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    2. Stefanie Schurer, 2008. "Discrete Heterogeneity in the Impact of Health Shocks on Labour Market Outcomes," Melbourne Institute Working Paper Series wp2008n19, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    3. Pudney, Stephen & Hancock, Ruth & Morciano, Marcello, 2013. "Nonparametric estimation of a compensating variation: the cost of disability," ISER Working Paper Series 2013-26, Institute for Social and Economic Research.
    4. Alecos Papadopoulos, 2024. "The Nash Bargaining Two-tier Stochastic Frontier Model," Advances in Econometrics, in: Essays in Honor of Subal Kumbhakar, volume 46, pages 439-476, Emerald Group Publishing Limited.
    5. Christopher F. Parmeter, 2018. "Estimation of the two-tiered stochastic frontier model with the scaling property," Journal of Productivity Analysis, Springer, vol. 49(1), pages 37-47, February.
    6. Ólafsdóttir, Thorhildur & Ásgeirsdóttir, Tinna Laufey & Norton, Edward C., 2020. "Valuing pain using the subjective well-being method," Economics & Human Biology, Elsevier, vol. 37(C).
    7. Alecos Papadopoulos, 2015. "The half-normal specification for the two-tier stochastic frontier model," Journal of Productivity Analysis, Springer, vol. 43(2), pages 225-230, April.
    8. Alecos Papadopoulos & Christopher F. Parmeter & Subal C. Kumbhakar, 2021. "Modeling dependence in two-tier stochastic frontier models," Journal of Productivity Analysis, Springer, vol. 56(2), pages 85-101, December.
    9. Fink Simonsen, Nicolai & Kjær, Trine, 2021. "New Evidence of Health State Dependent Utility of Consumption: A combined survey and register study," DaCHE discussion papers 2021:2, University of Southern Denmark, Dache - Danish Centre for Health Economics.
    10. Poggi, Ambra, 2010. "Job satisfaction, working conditions and aspirations," Journal of Economic Psychology, Elsevier, vol. 31(6), pages 936-949, December.
    11. Stefanie Schurer, 2008. "Discrete Heterogeneity in the Impact of Health Shocks on Labour Market Outcomes," Ruhr Economic Papers 0071, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

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