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Valuing Risk in the Workplace: Market Price, Willingness to Pay, and the Optimal Provision of Safety

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  • Herzog, Henry W, Jr
  • Schlottmann, Alan M
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    Abstract

    The theory of compensating wage differentials, attributable to Adam Smith, suggests that jobs with disagreeable characteristics will command high wages, ceteris paribus. Most empirical tests of this theory with hedonic wage equations implicitly assume that workers' willingness to pay for risk reduction (safety) in the workplace through diminished wages and market valuations of the "price" of these reductions are equivalent. It is shown that this is not the case within the manufacturing sector where willingness to pay exceeds the price (cost) of risk reduction at current levels of risk exposure. Implications for implied value of life estimates are also examined. Copyright 1990 by MIT Press.

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    Bibliographic Info

    Article provided by MIT Press in its journal Review of Economics & Statistics.

    Volume (Year): 72 (1990)
    Issue (Month): 3 (August)
    Pages: 463-70

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    Handle: RePEc:tpr:restat:v:72:y:1990:i:3:p:463-70

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    Web page: http://mitpress.mit.edu/journals/

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    Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535

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    Cited by:
    1. S. Madheswaran, 2007. "Measuring the value of statistical life: estimating compensating wage differentials among workers in India," Social Indicators Research, Springer, vol. 84(1), pages 83-96, October.
    2. Cottini, Elena & Kato, Takao & Westergaard-Nielsen, Niels, 2011. "Adverse workplace conditions, high-involvement work practices and labor turnover: Evidence from Danish linked employer–employee data," Labour Economics, Elsevier, vol. 18(6), pages 872-880.
    3. Jos van Ommeren & Gerard J. van den Berg & Cees Gorter, 2000. "Estimating the Marginal Willingness to Pay for Commuting," Journal of Regional Science, Wiley Blackwell, vol. 40(3), pages 541-563.
    4. Pouliakas, Konstantinos & Theodossiou, Ioannis, 2010. "An Inquiry Into The Theory, Causes And Consequences Of Monitoring Indicators Of Health And Safety At Work," SIRE Discussion Papers 2010-120, Scottish Institute for Research in Economics (SIRE).
    5. Van Ommeren, Jos & Fosgerau, Mogens, 2009. "Workers' marginal costs of commuting," Journal of Urban Economics, Elsevier, vol. 65(1), pages 38-47, January.
    6. S. Madheswaran, 2008. "Measuring the Value of Life and Limb: Estimating Compensating Wage Differentials Among Workers in Chennai and Mumbai," Working Papers id:1708, eSocialSciences.
    7. Dora L. Costa & Matthew E. Kahn, 2002. "Changes in the Value of Life: 1940-1980," NBER Working Papers 9396, National Bureau of Economic Research, Inc.
    8. François Bellavance & Georges Dionne & Martin Lebeau, 2006. "The Value of a Statistical Life: a Meta-Analysis with a Mixed Effects Regression Model," Cahiers de recherche 0646, CIRPEE.
    9. Scott, Anthony, 2001. "Eliciting GPs' preferences for pecuniary and non-pecuniary job characteristics," Journal of Health Economics, Elsevier, vol. 20(3), pages 329-347, May.
    10. Jos Van Ommeren & Mihails Hazans, 2008. "Workers' Valuation of the Remaining Employment Contract Duration," Economica, London School of Economics and Political Science, vol. 75(297), pages 116-139, 02.
    11. Deller, Steven C. & Ottem, Thomas, 2002. "Crime and the Quality of Life in Wisconsin Counties," Staff Paper Series 442, University of Wisconsin, Agricultural and Applied Economics.
    12. Viscusi, W Kip, 1993. "The Value of Risks to Life and Health," Journal of Economic Literature, American Economic Association, vol. 31(4), pages 1912-46, December.

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