Income-well-being gradient in sickness and health

Petri Böckerman (petri.bockerman@labour.fi), Ohto Kanninen (ohto.kanninen@labore.fi) and Ilpo Suoniemi

No 335, Working Papers from Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE

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–well-being 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–well-being 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)
Pages: 68 pages
Date: 2022-06-07
New Economics Papers: this item is included in nep-hap and nep-upt
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Working Paper: Income–well-being gradient in sickness and health (2022)
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