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Measuring Individuals Valuation of Health Care: Labour Market Perspective

How can we value improvements on quantity and quality of life? This question has motivated several research agendas in economics literature, from labour to health economics, involving both theoretical and applied contributions. This white paper explores this question from the perspective of the economic benefits generated by health improvements. In order to value the contribution of a particular policy or technology we will explore the ability of life-cycle model for deriving counterfactual scenarios. The following sections provide a guide about how to use this tool when considering health evolution, and present some studies related to it with special emphasis on labour economics. The first part of this white paper is devoted to the building blocks required for estimating the value of health-related interventions using life-cycle models. It starts with a a review of the main concepts in economics evaluation, including Cost Benefit Analysis (CBA), Cost Effectiveness Analysis (CEA), Quality Adjusted Life Year (QALY) and Willingness to Pay (WTP). This last concept is explored in detail within the life-cycle model framework. In this setup, two elements of the model’s are explored: how to measure and model quality of health and its relation with the utility function, and how to model its evolution. The second part presents a review of the literature that has considered life-cycle models that include health evolution. Rather than a comprehensive review, I briefly present a selected group of articles that highlight the main elements to consider when modelling health in the life-cycle context. A first group explores models that consider how economic activity is shaped by current and future health shocks. This literature explore their consequences on individual choices such as health expenditures and lifestyle, but also on savings and labour supply. It also covers the role of health and disability insurance, and of social security. The second group presents themes in which I consider there is substantial work to do. First, how to incorporate subjective beliefs information into structural life-cycle models. Second, how this models can be used for improving evaluation of health-related interventions.

This is a White Paper prepared for the NBER-IFS International Network on the Value of Medical Research. It is available at:

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