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The Subjective Well‐Being Method of Valuation: An Application to General Health Status
Author(s) -
Brown Timothy T.
Publication year - 2015
Publication title -
health services research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.706
H-Index - 121
eISSN - 1475-6773
pISSN - 0017-9124
DOI - 10.1111/1475-6773.12294
Subject(s) - happiness , marital status , proxy (statistics) , valuation (finance) , subjective well being , household income , actuarial science , demographic economics , econometrics , medicine , psychology , economics , statistics , environmental health , mathematics , social psychology , geography , population , archaeology , finance
Objective To introduce the subjective well‐being ( SWB ) method of valuation and provide an example by valuing health status. The SWB method allows monetary valuations to be performed in the absence of market relationships. Data Sources Data are from the 1975–2010 General Social Survey. Study Design The value of health status is determined via the estimation of an implicit derivative based on a happiness equation. Two‐stage least‐squares was used to estimate happiness as a function of poor‐to‐fair health status, annual household income adjusted for household size, age, sex, race, marital status, education, year, and season. Poor‐to‐fair health status and annual household income are instrumented using a proxy for intelligence, a temporal version of the classic distance instrument, and the average health status of individuals who are demographically similar but geographically separated. Instrument validity is evaluated. Principal Findings Moving from good/excellent health to poor/fair health (1 year of lower health status) is equivalent to the loss of $41,654 of equivalized household income (2010 constant dollars) per annum, which is larger than median equivalized household income. Conclusion The SWB method may be useful in making monetary valuations where fundamental market relationships are not present.