How sensitive is the compensating income variation to severity and adaptation?

Kristjana Baldursdottir*, Tinna Laufey Asgeirsdottir, Thorhildur Olafsdottir

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

Knowing the monetary value individuals place on health is essential in tackling resource allocation between health and other uses. However, health conditions vary greatly, not only with respect to main characteristics but also by severity and duration. We apply the compensating income variation (CIV) method to data from the Swiss Household Panel, years 2004–2019, to explore the sensitivity of CIV estimates to severity and adaptation across five different health conditions: headaches, back problems, sleep problems, fatigue, and chronic illness. Accounting for income endogeneity in the life-satisfaction equations and adjusting for individual random effects, we found the CIV estimates to range from $3184 for moderate headaches (women) to $100,066 for severe fatigue (men). Individuals with severe conditions needed to be compensated about three times more than those suffering less. Across the five conditions with two severity levels explored for adaptation, individuals only adapted to moderate headaches and severe sleep problems. In conclusion, not only does the value of health conditions vary greatly, but within each health condition its value on average triples when severe condition is reported as opposed to moderate. Adaptation plays a minor role in CIV estimates for the five health conditions explored.

Original languageEnglish
Article number101213
Pages (from-to)101213
JournalEconomics and Human Biology
Volume49
DOIs
Publication statusPublished - 1 Apr 2023

Bibliographical note

Funding Information:
We gratefully acknowledge financial support from The Icelandic Research Fund (grant no. 184975-052 ) and the University of Iceland Research Fund . This study has been realized using the data collected by the Swiss Household Panel (SHP), which is based at the Swiss Centre of Expertise in the Social Sciences FORS. The SHP project is supported by the Swiss National Science Foundation .

Funding Information:
We gratefully acknowledge financial support from The Icelandic Research Fund (grant no. 184975-052) and the University of Iceland Research Fund. This study has been realized using the data collected by the Swiss Household Panel (SHP), which is based at the Swiss Centre of Expertise in the Social Sciences FORS. The SHP project is supported by the Swiss National Science Foundation.

Publisher Copyright:
© 2023 Elsevier B.V.

Other keywords

  • Adaptation
  • Compensating income variation
  • Instrumental variable
  • Life satisfaction
  • Severity

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