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The Shadow Prices of Voluntary Caregiving: Using Panel Data of Well-Being to Estimate the Cost of Informal Care

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  • McDonald, Rebecca

    () (University of Birmingham)

  • Powdthavee, Nattavudh

    () (University of Warwick)

Abstract

This paper uses the wellbeing valuation (WV) approach to estimate and monetize the wellbeing impacts of informal care provision on caregivers. Using nationally representative longitudinal data from the U.K., we address two challenging methodological issues related to the economic valuation of informal care: (i) the endogeneity of informal care; and (ii) the sensitivity of income estimates used in valuation. We address the endogeneity issue by decomposing wellbeing losses into those associated with caring for a relative who had recently suffered a serious accident and those associated with caring for a relative who had not had an accident. We use of the Fixed Effects Filtered (FEF) estimator to enable the permanent income coefficient to be estimated free from individual fixed effects bias. This estimate is used instead of the transient income effect in the calculation of shadow prices of informal care. Our estimates suggest that permanent income would have to increase by approximately £102k per year on average to just compensate for the wellbeing losses from providing informal care.

Suggested Citation

  • 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 for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp11545
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    Keywords

    informal care; well-being; compensation variations; permanent income; happiness; shadow prices;

    JEL classification:

    • H8 - Public Economics - - Miscellaneous Issues
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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