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Disability And Marginal Utility Of Income: Evidence From Hypothetical Choices

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  • Sven Tengstam

Abstract

It is often assumed that disability reduces the marginal utility of income. In this article, individuals' marginal utility of income in two states—(i) paralyzed in both legs from birth and (ii) not mobility impaired at all—is measured through hypothetical choices between imagined lotteries behind a so‐called veil of ignorance. The outcomes of the lotteries include both income and disability status. It is found that most people have higher marginal utility when paralyzed than when not mobility impaired at all. The two marginal utilities are evaluated at the same levels of income. Having personal experience of mobility impairment and supporting the Left Party, the Social Democratic Party, the Green Party, or the Liberal Party are associated with having a higher marginal utility when paralyzed. The results suggest that more than full insurance of income losses connected to being disabled is optimal. The results further suggest that, given a utilitarian social welfare function, resources should be transferred to rather than from disabled people. Finally, if the transfers are not large enough to smooth out the marginal utilities of the disabled and the nondisabled, distributional weights based on disability status should be used in cost–benefit analysis. Copyright © 2013 John Wiley & Sons, Ltd.

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  • Sven Tengstam, 2014. "Disability And Marginal Utility Of Income: Evidence From Hypothetical Choices," Health Economics, John Wiley & Sons, Ltd., vol. 23(3), pages 268-282, March.
    • Handle: RePEc:wly:hlthec:v:23:y:2014:i:3:p:268-282
    DOI: 10.1002/hec.2912
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    2. Richard Cookson & Ieva Skarda & Owen Cotton‐Barratt & Matthew Adler & Miqdad Asaria & Toby Ord, 2021. "Quality adjusted life years based on health and consumption: A summary wellbeing measure for cross‐sectoral economic evaluation," Health Economics, John Wiley & Sons, Ltd., vol. 30(1), pages 70-85, January.
    3. Seog, S. Hun & Hong, Jimin, 2024. "Moral hazard in loss reduction and state-dependent utility," Insurance: Mathematics and Economics, Elsevier, vol. 115(C), pages 151-168.
    4. Florian H. Schneider & Martin Schonger, 2019. "An Experimental Test of the Anscombe–Aumann Monotonicity Axiom," Management Science, INFORMS, vol. 65(4), pages 1667-1677, April.
    5. Yves Arrighi & David Crainich & Véronique Flambard & Sophie Massin, 2022. "Personalized information and willingness to pay for non-financial risk prevention: An experiment," Journal of Risk and Uncertainty, Springer, vol. 65(1), pages 57-82, August.
    6. Dorte Gyrd‐Hansen, 2017. "A Stated Preference Approach to Assess whether Health Status Impacts on Marginal Utility of Consumption," Health Economics, John Wiley & Sons, Ltd., vol. 26(10), pages 1224-1233, October.
    7. W. Kip Viscusi, 2019. "Utility functions for mild and severe health risks," Journal of Risk and Uncertainty, Springer, vol. 58(2), pages 143-166, June.
    8. Arthur E. Attema & Marieke Krol & Job Exel & Werner B. F. Brouwer, 2018. "New findings from the time trade-off for income approach to elicit willingness to pay for a quality adjusted life year," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 19(2), pages 277-291, March.
    9. Richard Cookson & Owen Cotton-Barrett & Matthew Adler & Miqdad Asaria & Toby Ord, 2016. "Years of good life based on income and health: Re-engineering cost-benefit analysis to examine policy impacts on wellbeing and distributive justice," Working Papers 132cherp, Centre for Health Economics, University of York.

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