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Money for Health: The Compensating Variation of Cardiovascular Diseases

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Author Info

  • Groot, Wim

    ()
    (Maastricht University)

  • Maassen van den Brink, Henriette

    ()
    (University of Amsterdam)

  • Plug, Erik

    ()
    (University of Amsterdam)

Abstract

This paper introduces a new method to calculate the extent to which individuals are willing to trade money for improvements in their health status. An individual welfare function of income (WFI) is applied to calculate the compensating income variation of health impairments. We believe that this approach avoids various drawbacks of alternative willingness-to-pay methods. The WFI is used to calculate the compensating variation of cardiovascular diseases. It is found that for a 25-year old male the compensating variation of a heart disease ranges from 160,000 Euro to 430,000 Euro depending on the welfare level. This is about 8,000 to 32,000 Euro for an additional life year, depending on the quality of life. The compensating variation declines with age and is lower for women than for men. The estimates further vary by the discount rate chosen. The estimates of the compensating variation are generally higher than the money spent on heart related medical interventions per QALY.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 653.

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Length: 25 pages
Date of creation: Nov 2002
Date of revision:
Publication status: published in: Health Economics, 2004, 13 (9), 859-872
Handle: RePEc:iza:izadps:dp653

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Keywords: subjective income evaluation; cardiovascular disease; compensating income variations;

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References

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  1. Plug, Erik J. S. & Van Praag, Bernard M. S., 1998. "Similarity in response behavior between household members: An application to income evaluation," Journal of Economic Psychology, Elsevier, vol. 19(4), pages 497-513, August.
  2. Buyze, Jeannine, 1982. "The estimation of welfare levels of a cardinal utility function," European Economic Review, Elsevier, vol. 17(3), pages 325-332.
  3. Goedhart , T. & Praag, B.M.S. van & Kapteyn, A.J., 1980. "The poverty line: A pilot survey in Europe," Open Access publications from Tilburg University urn:nbn:nl:ui:12-361907, Tilburg University.
  4. van Hout, Ben & Bonsel, Gouke & Habbema, Dik & van der Maas, Paul & de Charro, Frank, 1993. "Heart transplantation in the Netherlands; costs, effects and scenarios," Journal of Health Economics, Elsevier, vol. 12(1), pages 73-93, April.
  5. Plug, Erik J. S. & van Praag, Bernard M. S. & Hartog, Joop, 1999. "If we knew ability, how would we tax individuals?," Journal of Public Economics, Elsevier, vol. 72(2), pages 183-211, May.
  6. Herwaarden, F.G. van & Kapteyn, A.J., 1979. "Empirical comparison of the shape of welfare functions," Open Access publications from Tilburg University urn:nbn:nl:ui:12-361905, Tilburg University.
  7. Alan Diener & Bernie O'Brien & Amiram Gafni, 1998. "Health care contingent valuation studies: a review and classification of the literature," Health Economics, John Wiley & Sons, Ltd., vol. 7(4), pages 313-326.
  8. Van Praag, Bernard, 1971. "The welfare function of income in Belgium: An empirical investigation," European Economic Review, Elsevier, vol. 11(3), pages 337-369.
  9. van Praag, Bernard M. S., 1991. "Ordinal and cardinal utility : An integration of the two dimensions of the welfare concept," Journal of Econometrics, Elsevier, vol. 50(1-2), pages 69-89, October.
  10. Van Praag, Bernard M. S. & Kapteyn, Arie, 1973. "Further evidence on the individual welfare function of income: An empirical investigatiion in The Netherlands," European Economic Review, Elsevier, vol. 4(1), pages 33-62, April.
  11. Van Praag, Bernard M.S. & Warnaar, Marcel F., 1993. "The cost of children and the use of demographic variables in consumer demand," Handbook of Population and Family Economics, in: M. R. Rosenzweig & Stark, O. (ed.), Handbook of Population and Family Economics, edition 1, volume 1, chapter 6, pages 241-273 Elsevier.
  12. Ada Ferrer-i-Carbonell & Bernard M.S. van Praag, 2002. "The Subjective Costs of Health Losses due to Chronic Diseases," Tinbergen Institute Discussion Papers 02-023/3, Tinbergen Institute.
  13. Stadt, H. van de & Geer, S.A. van de & Kapteyn, A.J., 1985. "The relativity of utility: Evidence from panel data," Open Access publications from Tilburg University urn:nbn:nl:ui:12-364325, Tilburg University.
  14. Hagenaars, Aldi J M & van Praag, Bernard M S, 1985. "A Synthesis of Poverty Line Definitions," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 31(2), pages 139-54, June.
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