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Nonparametric estimation of a compensating variation: the cost of disability

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  • Hancock, Ruth
  • Morciano, Marcello
  • Pudney, Stephen

Abstract

We propose a nonparametric matching approach to estimation of implicit costs based on the compensating variation (CV) principle. We apply the method to estimate the additional personal costs experienced by disabled older people in Great Britain, finding that those costs are substantial, averaging in the range £48-61 a week, compared with the mean level of state disability benefit (£28) or total public support (£47) received. Estimated costs rise strongly with the severity of disability. We compare the nonparametric approach with the standard parametric method, finding that the latter tends to generate large overestimates unless conditions are ideal. The nonparametric approach has much to recommend it.

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Bibliographic Info

Paper provided by Institute for Social and Economic Research in its series ISER Working Paper Series with number 2013-26.

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Date of creation: 04 Dec 2013
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Publication status: published
Handle: RePEc:ese:iserwp:2013-26

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Postal: Publications Office, Institute for Social and Economic Research, University of Essex, Wivenhoe Park, Colchester, Essex CO4 3SQ UK
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Fax: 44-1206-873151
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Web page: https://www.iser.essex.ac.uk/
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Postal: Publications Office, Institute for Social and Economic Research, University of Essex, Wivenhoe Park, Colchester, Essex CO4 3SQ UK
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Web: https://www.iser.essex.ac.uk/publications/

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  1. Wim Groot & Henriëtte Brink & Bernard Praag, 2007. "The Compensating Income Variation of Social Capital," Social Indicators Research, Springer, Springer, vol. 82(2), pages 189-207, June.
  2. Peter Lynn & Annette Jäckle & Stephen P. Jenkins & Emanuela Sala, 2005. "The Effects of Dependent Interviewing on Responses to Questions on Income Sources," Discussion Papers of DIW Berlin 487, DIW Berlin, German Institute for Economic Research.
  3. Mike Brewer & Cormac O'Dea, 2012. "Measuring living standards with income and consumption: evidence from the UK," IFS Working Papers, Institute for Fiscal Studies W12/12, Institute for Fiscal Studies.
  4. James Heckman, 1997. "Instrumental Variables: A Study of Implicit Behavioral Assumptions Used in Making Program Evaluations," Journal of Human Resources, University of Wisconsin Press, vol. 32(3), pages 441-462.
  5. Wim Groot & Henri�tte Maassen van den Brink & Bernard M.S. van Praag, 2007. "The Compensating Income Variation of Social Capital," Tinbergen Institute Discussion Papers, Tinbergen Institute 07-050/3, Tinbergen Institute.
  6. Ada Ferrer-i-Carbonell & Bernard M.S. van Praag, 2002. "The subjective costs of health losses due to chronic diseases. An alternative model for monetary appraisal," Health Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 11(8), pages 709-722.
  7. repec:ese:iserwp:2006-35 is not listed on IDEAS
  8. repec:ese:iserwp:2012-09 is not listed on IDEAS
  9. Asghar Zaidi & Tania Burchardt, 2005. "Comparing Incomes When Needs Differ: Equivalization For The Extra Costs Of Disability In The U.K," Review of Income and Wealth, International Association for Research in Income and Wealth, International Association for Research in Income and Wealth, vol. 51(1), pages 89-114, 03.
  10. Blanchflower, David G. & Oswald, Andrew J., 2001. "Well-Being Over Time in Britain and the USA," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 616, University of Warwick, Department of Economics.
  11. Wim Groot & Henri�tte Maassen van den Brink, 2006. "The compensating income variation of cardiovascular disease," Health Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 15(10), pages 1143-1148.
  12. Andrew Jones & Owen O'Donnell, . "Equivalence Scales and the Costs of Disability," Discussion Papers, Department of Economics, University of York 94/12, Department of Economics, University of York.
  13. repec:ese:iserwp:2013-05 is not listed on IDEAS
  14. Wim Groot & Henriette Maassen van den Brink & Bernard M.S. van Praag, 2007. "The Compensating Income Variation of Social Capital," CESifo Working Paper Series 1889, CESifo Group Munich.
  15. 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, Elsevier, vol. 65(7), pages 1479-1489, October.
  16. Emmanouil Mentzakis, 2011. "Allowing for heterogeneity in monetary subjective well‐being valuations," Health Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 20(3), pages 331-347, March.
  17. Di Tella, Rafael & MacCulloch, Robert, 2008. "Gross national happiness as an answer to the Easterlin Paradox?," Journal of Development Economics, Elsevier, Elsevier, vol. 86(1), pages 22-42, April.
  18. Emmanouil Mentzakis & Paul McNamee & Mandy Ryan & Matthew Sutton, 2012. "Valuing Informal Care Experience: Does Choice of Measure Matter?," Social Indicators Research, Springer, Springer, vol. 108(1), pages 169-184, August.
  19. Groot, Wim & Maassen van den Brink, Henriëtte, 2004. "A direct method for estimating the compensating income variation for severe headache and migraine," Social Science & Medicine, Elsevier, Elsevier, vol. 58(2), pages 305-314, January.
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