When Does Money Matter?: How Health Status Affects the Marginal Utility of Income

Abstract

This analysis explores how health status affects the marginal utility of income. To analyze this question, I employ a new survey of subjective well-being, the Princeton Affect and Time Survey (PATS), which asks people to report the strength of a number of different emotions as they went about their activities of the previous day. Based on findings from PATS, I conclude that the marginal utility of income is significantly higher for those who report being not satisfied with their health in terms of average levels of pain, sadness, and stress as experienced during the waking day and, also, when measured in terms of a more comprehensive misery index. Having a reported disability that limits the kind or amount of work in which a person can engage has a much weaker relationship with the marginal utility of income, although there is some evidence that this too increases the marginal utility of income especially in terms of pain reduction. Still, any such positive relationship between disability and the marginal utility of income, as measured in this study, appears limited to those who report both having a disability and being not satisfied with their health. Finally, this study concludes that this positive relationship between poor health status and a higher marginal utility of income is largely limited to those near the bottom of the income spectrum.