Valuing the benefits from health care interventions using life satisfaction data

This paper uses life satisfaction data to calculate the extent to which individuals are willing to trade money for improvements in their health status. Using a large nationally representative survey in the UK, I showthat the amount of extra equivalent household income to make someone with a health condition, as well off in terms of life satisfaction as someone without the health condition, ranges from a low of £4,235 per annum for impairments associated with asthma to a high of £31,283 for impairments associated with congestive heart failure. These values could be used as a basis for a cost-benefit analysis of health care interventions aimed at the medical conditions examined. Relative to previous work, I address a number of critical empirical challenges when it comes to using this compensating income variation approach for determining the monetary value of a health improvement. First, I address the issue of income endogeneity in life satisaction by instrumenting income with the educational status of respondents’ parents. Second, I control for the potentially confounding role of personality differences by including a measure of the Big Five personality traits in the micro-econometirc analysis of life satisfaction.