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Risk Perception, Dread, and the Value of Statistical Life: Evidence from Occupational Fatalities

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Abstract

In a model of occupational safety, biased perceptions of risk decrease welfare, which may justify government regulation. Bias is examined empirically by the correlation between subjective and objective risk, the former measured by self-reported exposure to death on the job. The correlation is negligible among workers with no high school diploma, consistent with underestimating risk in more dangerous occupations, and strongest among more educated workers when objective risk is specific to harmful and noxious substances, which in psychological studies rank high in dread. Biased perceptions of risk may also lead to biased estimates of value of statistical life. VSL estimates are negligible across all education levels using the all cause fatality rate, but consistently greater among more educated workers using the fatality rate due to harmful and noxious substances, upwards of $70 million and more. Optimal policy is considered, including an illustrative simulation of a risk ceiling.

Suggested Citation

  • Perry Singleton, 2024. "Risk Perception, Dread, and the Value of Statistical Life: Evidence from Occupational Fatalities," Center for Policy Research Working Papers 263, Center for Policy Research, Maxwell School, Syracuse University.
    • Handle: RePEc:max:cprwps:263
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    File URL: https://surface.syr.edu/cpr/486/
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    More about this item

    Keywords

    Compensating wage differentials; value of statistical life; occupational safety; risk perception;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J81 - Labor and Demographic Economics - - Labor Standards - - - Working Conditions

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