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Nonparametric estimation of a compensating variation: the cost of disability

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  • Pudney, Stephen
  • Hancock, Ruth
  • Morciano, Marcello

Abstract

We propose a nonparametric matching approach to estimation of implicit costs based on the compensating variation (CV) principle. We apply the method to estimate the additional personal costs experienced by disabled older people in Great Britain, finding that those costs are substantial, averaging in the range £48-61 a week, compared with the mean level of state disability benefit (£28) or total public support (£47) received. Estimated costs rise strongly with the severity of disability. We compare the nonparametric approach with the standard parametric method, finding that the latter tends to generate large overestimates unless conditions are ideal. The nonparametric approach has much to recommend it.

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  • Pudney, Stephen & Hancock, Ruth & Morciano, Marcello, 2013. "Nonparametric estimation of a compensating variation: the cost of disability," ISER Working Paper Series 2013-26, Institute for Social and Economic Research.
    • Handle: RePEc:ese:iserwp:2013-26
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    References listed on IDEAS

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    Cited by:

    1. Lukas Schuelke & Luke Munford & Marcello Morciano, 2022. "Estimating the additional costs of living with a disability in the United Kingdom between 2013 and 2016," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 23(2), pages 313-327, March.
    2. Michael Palmer & Jenny Williams & Barbara McPake, 2019. "Standard of Living and Disability in Cambodia," Journal of Development Studies, Taylor & Francis Journals, vol. 55(11), pages 2382-2402, November.
    3. Holford, Angus J. & Pudney, Stephen, 2015. "Survey Design and the Determinants of Subjective Wellbeing: An Experimental Analysis," IZA Discussion Papers 8760, Institute of Labor Economics (IZA).
    4. Mariya Melnychuk & Francesca Solmi & Stephen Morris, 2018. "Using compensating variation to measure the costs of child disability in the UK," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 19(3), pages 419-433, April.
    5. Howley, P., 2016. "Valuing the benefits from health care interventions using life satisfaction data," Health, Econometrics and Data Group (HEDG) Working Papers 16/01, HEDG, c/o Department of Economics, University of York.
    6. Holford, Angus & Pudney, Stephen, 2014. "Survey design and the determinants of subjective wellbeing: an experimental analysis," Understanding Society Working Paper Series 2014-06, Understanding Society at the Institute for Social and Economic Research.

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