Many argue that disability generally lowers the marginal utility of income. This paper questions this view. Individuals’ marginal utility (measured by a von Neumann-Morgenstern utility function) of income are estimated in two states; when being paralyzed and when not being paralyzed. Experimental choices between imagined lotteries, where the outcome includes both income and disability status, are used. This allows for estimation of the ratio of the individual’s marginal utility of income when being paralyzed and when not being paralyzed, the Relative Marginal Utility of Income when Disabled (RMUID). The median RMUID is estimated to between 1.33 and 2. It is extremely (at the 0.005 % level) statistically significant higher than one. Individuals with personal experience of mobility impairment and of university studies, and voters for the Left Block and the Liberal Party, have higher RMUID than others. The results have implications for the optimal level of insurance and for the question of whether we should use distributional weights in cost-benefit analysis.
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Publisher Info
Paper provided by Göteborg University, Department of Economics in its series Working Papers in Economics with number
276.
Length: 15 pages Date of creation: 21 Nov 2007 Date of revision: Handle: RePEc:hhs:gunwpe:0276
Contact details of provider: Postal: Department of Economics, School of Business, Economics and Law, Göteborg University Box 640, SE 405 30 GÖTEBORG, Sweden Phone: 031-773 10 00 Web page: http://www.handels.gu.se/econ/ More information through EDIRC
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