An Economic Analysis of the Value of Lost Health

This paper describes a model for calculating damages, including the lost pleasure of life, in cases involving personal injury. The model is based on the theory of household utility maximization. The members of the household are assumed to produce three types of goods for household consumption: 1) money income; 2) home-produced goods and services; and, 3) leisure. The allocation of time by members of the household pre- and post-injury are compared. Drawing upon well-accepted models of household decisions about the allocation of time and goods, the paper develops a measure of economic damages based on the household's lost productivity of time post-injury. The paper then demonstrates that the compensation necessary to make the household whole can be calculated by using Slutsky's method for determining compensation where relative prices have changed