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Less money or better health? Evaluating individual’s willingness to make trade-offs using life satisfaction data

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  • Howley, Peter

Abstract

Health care practitioners are increasingly required to make more efficient decisions when it comes to allocating health care expenditure. This requires not only information relating to the costs of medical interventions, but also the benefits of such interventions on individual’s overall well-being. In order to calculate the well-being losses associated with health conditions, this study uses the compensating income variation approach (CIV), to calculate the amount of extra equivalent household income to make someone who suffers from one of 15 health conditions, as well off in terms of life satisfaction as someone who does not have these health conditions. To help put these findings into perspective, this study also calculates CIVs for many other factors commonly found to be significantly associated with subjective well-being (e.g. unemployment, widowhood, separation and indicators of social capital). This paper builds on previous work using CIVs in health by addressing the issue of income endogeneity in life satisfaction and also testing how robust the derived CIVs are to the inclusion of personality measures, namely the Big Five personality traits. The analysis suggests that health conditions significantly affect individual’s quality of life and that the amount needed to make someone with a health condition as well off as someone without those health conditions can be substantive, albeit less than is commonly reported in the literature using the CIV approach to date.

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  • Howley, Peter, 2017. "Less money or better health? Evaluating individual’s willingness to make trade-offs using life satisfaction data," Journal of Economic Behavior & Organization, Elsevier, vol. 135(C), pages 53-65.
  • Handle: RePEc:eee:jeborg:v:135:y:2017:i:c:p:53-65
    DOI: 10.1016/j.jebo.2017.01.010
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    Cited by:

    1. McDonald, Rebecca & Powdthavee, Nattavudh, 2018. "The Shadow Prices of Voluntary Caregiving: Using Panel Data of Well-Being to Estimate the Cost of Informal Care," IZA Discussion Papers 11545, Institute of Labor Economics (IZA).
    2. Tinna Laufey Ásgeirsdóttir & Arnar Buason & Ásthildur Margrét Jóhannsdóttir, 2023. "Valuing the Wellbeing Associated with Psychosocial Factors at Work," Applied Research in Quality of Life, Springer;International Society for Quality-of-Life Studies, vol. 18(4), pages 1737-1759, August.
    3. Sangwan Navjot & Tasciotti Luca, 2023. "Time to remit: the effect of remittances on household consumption and dietary diversity in India," IZA Journal of Development and Migration, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 14(1), pages 1-20, January.
    4. Kristjana Baldursdottir & Paul McNamee & Edward C. Norton & Tinna Laufey Asgeirsdottir, 2023. "Life satisfaction and body mass index: estimating the monetary value of achieving optimal body weight," Review of Economics of the Household, Springer, vol. 21(4), pages 1215-1246, December.
    5. Marcin Piekałkiewicz, 2017. "Why do economists study happiness?," The Economic and Labour Relations Review, , vol. 28(3), pages 361-377, September.
    6. Brad R. Humphreys & Bruce K. Johnson & John C. Whitehead, 2020. "Validity and reliability of contingent valuation and life satisfaction measures of welfare: An application to the value of national Olympic success," Southern Economic Journal, John Wiley & Sons, vol. 87(1), pages 316-330, July.
    7. Stöckel, Jannis & van Exel, Job & Brouwer, Werner B.F., 2023. "Adaptation in life satisfaction and self-assessed health to disability - Evidence from the UK," Social Science & Medicine, Elsevier, vol. 328(C).
    8. Paul McNamee & Silvia Mendolia & Oleg Yerokhin, 2021. "The transmission of partner mental health to individual life satisfaction: Estimates from a longitudinal household survey," Scottish Journal of Political Economy, Scottish Economic Society, vol. 68(4), pages 494-516, September.
    9. Sebastian Himmler & Jannis Stöckel & Job van Exel & Werner B. F. Brouwer, 2021. "The value of health—Empirical issues when estimating the monetary value of a quality‐adjusted life year based on well‐being data," Health Economics, John Wiley & Sons, Ltd., vol. 30(8), pages 1849-1870, August.
    10. Ólafsdóttir, Thorhildur & Ásgeirsdóttir, Tinna Laufey & Norton, Edward C., 2020. "Valuing pain using the subjective well-being method," Economics & Human Biology, Elsevier, vol. 37(C).
    11. Mendolia, Silvia & McNamee, Paul & Yerokhin, Oleg, 2018. "The Transmission of Mental Health within Households: Does One Partner's Mental Health Influence the Other Partner's Life Satisfaction?," IZA Discussion Papers 11431, Institute of Labor Economics (IZA).
    12. 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.
    13. Patel, Pankaj C. & Tsionas, Mike G. & Oghazi, Pejvak, 2023. "Compensating income variation in health and subjective well-being for the self-employed," Journal of Business Research, Elsevier, vol. 160(C).
    14. Baldursdottir, Kristjana & Asgeirsdottir, Tinna Laufey & Olafsdottir, Thorhildur, 2023. "How sensitive is the compensating income variation to severity and adaptation?," Economics & Human Biology, Elsevier, vol. 49(C).

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    More about this item

    Keywords

    Medical conditions; Self-reported quality of life; Compensating income variation; Instrumental variables; Health;
    All these keywords.

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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