Abstract
This article reviews economic evidence on health-dependent utility functions and presents new estimates of utility functions for cancer. Estimates of health-dependent utility functions have found that mild adverse health impacts can be treated as monetary equivalents. Severe health consequences also reduce utility levels but have an additional effect of altering the structure of utility functions by reducing the marginal utility of income. The implications of past studies are often misleading when they fail to account for income losses and medical expenses associated with serious ailments. This article’s estimates of the structure of utility functions for cancer indicate a substantially lower marginal utility of income at any given income level. This result is consistent with the welfare consequences of other severe health effects, which impose harms that are not tantamount to a monetary loss.
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Notes
The author is indebted to James K. Hammitt for the observation that respondents might have been seeking to equate the utility levels rather than the marginal utilities in the two health states.
Subjects who reached the tips of the iteration tree before indifference were assigned the values at that tip for which the results closely paralleled the estimates based on interval regressions that accounted for this aspect of the design.
Only 2.7% of respondents had top coded income values of $175,000. To adjust for the influence of top coding, the top coded income levels were multiplied by 1.5.
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The author is indebted to James K. Hammitt for extremely helpful comments. Rachel Dalafave and Scott Jeffrey provided excellent research assistance.
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Paper prepared for Vanderbilt-JRU Symposium, Risk Guideposts for a Safer Society
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Viscusi, W.K. Utility functions for mild and severe health risks. J Risk Uncertain 58, 143–166 (2019). https://doi.org/10.1007/s11166-019-09301-9
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DOI: https://doi.org/10.1007/s11166-019-09301-9