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VOLUME 50 | NUMBER 6 | DECEMBER 2015


The Subjective Well-Being Method of Valuation: An Application to General Health Status

Keywords: Subjective well-being; valuation; happiness; health status.

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.

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