Newswise — Matthew J. Notowidigdo, Neubauer Family Assistant Professor of Economics at the University of Chicago Booth School of Business, has been awarded, along with his co-authors, Amy Finkelstein of MIT and Erzo F.P. Luttmer of Dartmouth College, the 2014 Hicks-Tinbergen Medal by the European Economic Association.

The trio received the award, given out every other year "to the author(s) of an outstanding article published in the Association’s Journal during the two preceding years," for their paper, "What Good Is Wealth Without Health? The Effect of Health on the Marginal Utility of Consumption."

"I'm extremely honored to win the award. I think that this paper represents the most challenging and ambitious research project I have worked on," Notowidigdo says. "The paper was also difficult to publish, so I admit that I am particularly happy to see our paper receive this award. I started this project with Amy and Erzo as a graduate student, and I learned a tremendous amount from working with them. The paper also stimulated my interest in public health insurance, which is a research area that I am continuing to focus on today."

"What Good Is Wealth Without Health?" explores the relationships between health and wealth, using the Health and Retirement Study’s panel data on the elderly and near-elderly.

Notowidigdo and his co-authors find that wealth provides greater benefits to the healthy than to the sick, and that the sicker you are, the less happiness you’ll get from spending more. And the higher your income group, the more your happiness level drops when your health worsens.

Though the researchers caution that their estimates are inexact, they suggest that the optimal share of medical expenses reimbursed by health insurance should be lowered 20 to 45 percentage points. Healthy people could get more enjoyment by spending their money on something other than monthly insurance premiums. People who are sick would have to pay a greater share of their medical expenses out of pocket, to compensate for lower premiums, but they wouldn't derive as much of a benefit from spending it elsewhere anyway.

“This study tackles the estimation of how the marginal utility of consumption varies with health status, an important input for the determination of optimal health insurance and transfer programs. Yet, changes in marginal utility are difficult to estimate using revealed preference,” the 2014 Hicks-Tinbergen Award Committee wrote in a statement. "The authors propose an innovative approach that uses happiness data instead to get directly at measures of utility. In particular, they estimate how measures of happiness vary with consumption, depending on the health status of the survey respondents. The estimates imply that an increase in diseases is associated with a decline in the marginal utility of consumption. This study shows that one can take happiness responses quantitatively into account in the determination of public policy."

The medal will be presented Aug. 27 during the annual European Economic Association Congress in Toulouse, France.