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Income–well-being gradient in sickness and health

Ohto Kanninen, Petri Böckerman () and Ilpo Suoniemi

MPRA Paper from University Library of Munich, Germany

Abstract: We propose a method of studying the value of insurance. For this purpose, we analyze well-being of the same individuals, comparing sick and healthy years in German panel survey data on life satisfaction. To impose structure on the income–wellbeing gradient, we fit a flexible utility function to the data, focusing on the differences in marginal utility in the sick and the healthy state, by allowing for a “fixed cost of sickness”. We find that marginal utility of income is higher in the sick state. We use our estimates to gauge the value of sickness insurance for Baily-Chetty type optimal policy calculations. We also show that the income–wellbeing gradient has steepened over time in Germany and we use the fitted model to characterize this change.

Keywords: life; satisfaction; state; dependence; risk; aversion; social; insurance; optimal; benefits; sickness; absence (search for similar items in EconPapers)
JEL-codes: C13 H55 I13 (search for similar items in EconPapers)
Date: 2022-06-02
New Economics Papers: this item is included in nep-eur, nep-hap, nep-hea, nep-ias and nep-upt
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