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Nonparametric estimation of a compensating variation: the cost of disability

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  • Hancock, Ruth
  • Morciano, Marcello
  • Pudney, Stephen

Abstract

We propose a nonparametric matching approach to estimation of implicit costs based on the compensating variation (CV) principle. We apply the method to estimate the additional personal costs experienced by disabled older people in Great Britain, finding that those costs are substantial, averaging in the range £48-61 a week, compared with the mean level of state disability benefit (£28) or total public support (£47) received. Estimated costs rise strongly with the severity of disability. We compare the nonparametric approach with the standard parametric method, finding that the latter tends to generate large overestimates unless conditions are ideal. The nonparametric approach has much to recommend it.

Suggested Citation

  • Hancock, Ruth & Morciano, Marcello & Pudney, Stephen, 2013. "Nonparametric estimation of a compensating variation: the cost of disability," ISER Working Paper Series 2013-26, Institute for Social and Economic Research.
  • Handle: RePEc:ese:iserwp:2013-26
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    File URL: https://www.iser.essex.ac.uk/research/publications/working-papers/iser/2013-26.pdf
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    References listed on IDEAS

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    6. Ruth Hancock & Marcello Morciano & Stephen Pudney & Francesca Zantomio, 2015. "Do household surveys give a coherent view of disability benefit targeting?: a multisurvey latent variable analysis for the older population in Great Britain," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 178(4), pages 815-836, October.
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    Cited by:

    1. Holford, Angus & Pudney, Stephen, 2014. "Survey design and the determinants of subjective wellbeing: an experimental analysis," Understanding Society Working Paper Series 2014-06, Understanding Society at the Institute for Social and Economic Research.
    2. repec:spr:eujhec:v:19:y:2018:i:3:d:10.1007_s10198-017-0893-7 is not listed on IDEAS
    3. Howley, P., 2016. "Valuing the benefits from health care interventions using life satisfaction data," Health, Econometrics and Data Group (HEDG) Working Papers 16/01, HEDG, c/o Department of Economics, University of York.

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