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Approaches to Estimating the Health State Dependence of the Utility Function

  • Finkelstein, Amy N.

    (MIT)

  • Luttmer, Erzo F. P.

    (Harvard University and IZA, Bonn)

  • Notowidigdo, Matthew J.

    (MIT)

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: https://research.hks.harvard.edu/publications/workingpapers/citation.aspx?PubId=6185&type=WPN
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Paper provided by Harvard University, John F. Kennedy School of Government in its series Working Paper Series with number rwp09-002.

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Date of creation: Jan 2009
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Handle: RePEc:ecl:harjfk:rwp09-002
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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. 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.
  3. Edwards, Ryan D, 2008. "Health Risk and Portfolio Choice," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 472-485.
  4. 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.
  5. 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.
  6. John Rust & Christopher Phelan, 1997. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Econometrica, Econometric Society, vol. 65(4), pages 781-832, July.
  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. 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.
  9. Mariacristina De Nardi & Eric French & John Bailey Jones, 2005. "Differential mortality, uncertain medical expenses, and the saving of elderly singles," Working Paper Series WP-05-13, Federal Reserve Bank of Chicago.
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