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Approaches to Estimating the Health State Dependence of the Utility Function

16 Pages Posted: 19 Jan 2009  

Amy Finkelstein

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); IZA Institute of Labor Economics

Matthew Notowidigdo

University of Chicago - Booth School of Business

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Abstract

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.

Keywords: state dependence, health, insurance, marginal utility

JEL Classification: D12, I1

Suggested Citation

Finkelstein, Amy and Luttmer, Erzo F. P. and Notowidigdo, Matthew, Approaches to Estimating the Health State Dependence of the Utility Function. IZA Discussion Paper No. 3925. Available at SSRN: https://ssrn.com/abstract=1329563

Amy Finkelstein (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Cambridge, MA 02142
United States
617-588-0361 (Phone)
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National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Erzo F.P. Luttmer

Dartmouth College ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Matthew Notowidigdo

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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