TY - JOUR AU - Mullahy,John AU - Sindelar,Jody L. TI - Health, Income, and Risk Aversion: Assessing Some Welfare Costs of Alcoholism and Poor Health JF - National Bureau of Economic Research Working Paper Series VL - No. 4649 PY - 1994 Y2 - February 1994 UR - http://www.nber.org/papers/w4649 L1 - http://www.nber.org/papers/w4649.pdf N1 - Author contact info: John Mullahy University of Wisconsin-Madison Dept. of Population Health Sciences 787 WARF, 610 N. Walnut Street Madison, WI 53726 Tel: 608/265-5410 Fax: 608/263-2820 E-Mail: jmullahy@facstaff.wisc.edu Jody L. Sindelar Yale School of Public Health Yale University School of Medicine 60 College Street, P.O. Box 208034 New Haven, CT 06520-8034 Tel: 203/785-5287 Fax: 203/785-6287 E-Mail: jody.sindelar@yale.edu AB - The economic costs of adverse health outcomes have typically been evaluated in a context of risk neutrality, an approach that ignores the potential welfare importance of individuals' risk preferences. This paper presents a framework that unifies the research in health capital and earnings with that on risk preferences in the presence of stochastic outcomes. The model is implemented to obtain estimates of the economic damages due both to general health problems as well as to one specific health problem that is of considerable interest from society's perspective: alcoholism. Our empirical findings, based on data from the Epidemiologic Catchment Area survey, indicate that failure to recognize the possibility of risk averse preferences leads to a potentially serious underestimation of the magnitudes of the 'costs' of alcoholism and poor health. In particular, it is shown that while alcoholism problems have negative impacts on the conditional mean of income (consistent with most of the existing literature), they also have positive impacts on the conditional variance of income. Our conclusions are to some degree provisional because our estimates of conditional variances are necessarily biased to the extent that unobserved heterogeneity is an important determinant of the moment structure of income in our sample. ER -