Admissible utility functions for health, longevity, and wealth: integrating monetary and life-year measures

James Hammitt

Journal of Risk and Uncertainty, 2013, vol. 47, issue 3, 325 pages

Abstract: The value of reducing health and mortality risks is often measured using value per statistical life (VSL) or one of several life-year measures (e.g., life years, quality-adjusted life years, disability-adjusted life years). I derive the utility function that is admissible when preferences for health and longevity, conditional on wealth, are consistent with any life-year measure (LYM) and examine the implications for marginal willingness to pay (WTP) for increases in health, longevity, and current-period survival probability. I conclude that marginal WTP for any LYM is decreasing and that VSL is increasing in the LYM. These results imply that cost-effectiveness analysis using a fixed monetary value per LYM is not consistent with economic welfare theory and that the benefit of a health improvement cannot be calculated by multiplying the change in a LYM by a constant. Copyright Springer Science+Business Media New York 2013

Keywords: Value per statistical life; Value per statistical life year; Quality-adjusted life year; Disability-adjusted life year; Healthy years equivalent; Willingness to pay; Risk aversion; D61; D81; I10 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (38)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jrisku:v:47:y:2013:i:3:p:311-325

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DOI: 10.1007/s11166-013-9178-4

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