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Approaches to Estimating the Health State Dependence of the Utility Function

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

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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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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  1. Alma Cohen & Liran Einav, 2005. "Estimating Risk Preferences from Deductible Choice," Discussion Papers 04-031, Stanford Institute for Economic Policy Research.
  2. Rust, J., 1994. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Working papers 9430, Wisconsin Madison - Social Systems.
  3. 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.
  4. Mariacristina De Nardi & Eric French & John Bailey Jones, 2006. "Differential Mortality, Uncertain Medical Expenses, and the Saving of Elderly Singles," 2006 Meeting Papers 46, Society for Economic Dynamics.
  5. Edwards, Ryan D, 2008. "Health Risk and Portfolio Choice," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 472-485.
  6. Amy Finkelstein & Erzo F.P. Luttmer & Matthew J. Notowidigdo, 2008. "What Good Is Wealth Without Health? The Effect of Health on the Marginal Utility of Consumption," NBER Working Papers 14089, National Bureau of Economic Research, Inc.
  7. Evans, William N & Viscusi, W Kip, 1991. "Estimation of State-Dependent Utility Functions Using Survey Data," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 94-104, February.
  8. Lillard, Lee A & Weiss, Yoram, 1997. "Uncertain Health and Survival: Effects on End-of-Life Consumption," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(2), pages 254-68, April.
  9. 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.
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