The Economic Value of Eliminating Diseases

CentER Discussion Paper Nr. 2022-029

55 Pages Posted: 12 Dec 2022

See all articles by Julio A. Crego

Julio A. Crego

Tilburg University

Daniel Karpati

Tilburg University

Jens Soerlie Kvaerner

Tilburg University

Luc Renneboog

Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

Date Written: November 21, 2022

Abstract

We estimate the causal effect of 334 different types of health shocks on a set of economic and health outcomes: medical expenses, mortality, disability, labor market participation, labor earnings, and the need for nursing home care. To this end, we examine detailed data on 6.9 million people diagnosed by medical specialists between 2013 and 2017. We address the empirical challenge that latent variables (e.g. life style) could be correlated both with the treatment status (diagnosis) and the outcome variables: for each individual diagnosed in a specific year, we consider as the counterfactual an individual that was not diagnosed in that year but will be in subsequent years. If some latent variables (e.g. life style) are related to a disease, the timing of the occurrence is shown to be largely random.

We quantify the benefits of (hypothetically) ``eliminating'' diseases and demonstrate that they have different consequences for people of different social strata. Our results reveal substantial heterogeneity in the welfare loss by types of disease for different types of people. For instance, the (equally weighted) average effect of health shocks on labor market participation is decreasing in permanent income and people with lower permanent income are more likely to be declared fully disabled. Furthermore, conditional on staying in the labor market, the drop in earnings following a health shock is more severe for people in the low permanent income group. In addition, we find that the average causal effect of a health shock increases with age for each of the above economic and health outcomes.

We then incorporate the estimates into a life-cycle model to estimate the welfare gains associated with curing diseases. By means of three examples of very different diseases we illustrate that the willingness to pay to eliminate a disease varies significantly. For instance, a 25-year old woman in the highest permanent income group would pay 25 times more to eliminate the risk of lung cancer than a woman in the lowest income class. The former would only pay 5 times as much to eliminate herniated disc problems. A man in the highest income class would pay less than half than his female counterpart to eliminate these diseases. We also point out the potential implications of such results for the financing of medical research.

Keywords: health shocks, household finance, life cycle, health economics, public health expenditure, labor earnings, labor participation, mortality, medical expenses

JEL Classification: D15, D63, G50, I10, H51

Suggested Citation

Crego, Julio and Karpati, Daniel and Soerlie Kvaerner, Jens and Renneboog, Luc, The Economic Value of Eliminating Diseases (November 21, 2022). CentER Discussion Paper Nr. 2022-029, Available at SSRN: https://ssrn.com/abstract=4282600 or http://dx.doi.org/10.2139/ssrn.4282600

Julio Crego (Contact Author)

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

Daniel Karpati

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

Jens Soerlie Kvaerner

Tilburg University ( email )

Warandelaan 2
Tilburg, -- 4818HK
Norway
40242704 (Phone)
0364 (Fax)

HOME PAGE: http://www.jenskvaerner.com/

Luc Renneboog

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Warandelaan 2
5000 LE Tilburg
Netherlands
+13 31 466 8210 (Phone)
+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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