Approaches to Estimating the Health State Dependence of the Utility Function

Abstract

In this paper, we outline what we believe are the main possible approaches to estimating health state dependence. We distinguish two broad classes of empirical approaches: approaches based on individuals’ revealed demand for moving resources across health states, and approaches based on observed utility changes associated with health changes for individuals of different consumption or resource levels. We discuss the appeals and challenges of each, in turn. Our basic conclusion is that while none of these approaches is a panacea, many offer the potential to shed important insights on the nature of health state dependence.