Approaches to Estimating the Health State Dependence of the Utility Function
Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)
Erzo F. P. Luttmer
Dartmouth College; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)
University of Chicago - Booth School of Business
IZA Discussion Paper No. 3925
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.
Number of Pages in PDF File: 16
Keywords: state dependence, health, insurance, marginal utility
JEL Classification: D12, I1
Date posted: January 19, 2009
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