Benefit Transfer Functions for Avoided Morbidity: A Preference Calibration Approach

Preference calibration has been proposed as a method for improving benefit transfers (Smith et al., 2002). The objective of this method is to develop a WTP function that can be used to predict individuals’ values for a wide range of quality changes. The analyst’s specification of preferences determines the form of this WTP function, and existing empirical studies provide the information that is needed to identify values for its parameters. The purpose of this paper is to explore and illustrate how the logic of preference calibration can be applied in the area of morbidity valuation. Using relatively simple functional forms for utility, we consider both acute (short-term) and chronic (long-term) illness. To identify values for key preference parameters, we combine information about WTP, health indexes, income, and, in some cases, duration of illness. We then use the calibrated parameters to specify WTP functions. Finally, we demonstrate how these functions can serve as benefit transfer functions, using them to predict WTP for a range of reductions in the severity and/or duration of illness and for different income levels.