The Effect of Health State on the Marginal Utility of Consumption : Evidence Based on Household Consumption Expenditure

This study applies broad-based measures of household consumption expenditure and a utility proxy to estimate the effect of health state on the marginal utility of consumption using the Russia Longitudinal Monitoring Survey’s panel data covering 1994-2019. To do so, I estimate how an observed within-individual utility change associated with a health shock varies across individuals of different consumption levels. The results reject the null of health-state independence of utility and show that the marginal utility of consumption increases as health deteriorates. The baseline estimates show that moving from a good health state to a poor health state raises the marginal utility of consumption by 2.5 to 4.0 percentage points depending on the measure of health. This finding implies that nonmedical consumption tends to buffer the negative effects of a health shock on well-being