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The Value of a Statistical Life under Ambiguity Aversion

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  • Nicolas Treich

Abstract

We show that ambiguity aversion increases the value of a statistical life as soon as the marginal utility of wealth is higher if alive than dead. The intuition is that ambiguity aversion has a similar effect as an increase in the perceived baseline mortality risk, and thus operates as the “dead anyway” effect. We suggest, however, that ambiguity aversion should usually have a modest effect on the prevention of ambiguous mortality risks within benefit-cost analysis, and can hardly justify the substantial “ambiguity premium” apparently embodied in environmental policy-making.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2291.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2291

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Keywords: ambiguity; value-of-a-statistical-life; uncertainty; risk-aversion; willingness-to-pay; benefit-cost analysis; environmental risk; health policy;

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Citations

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Cited by:
  1. Scotton, Carol R. & Taylor, Laura O., 2011. "Valuing risk reductions: Incorporating risk heterogeneity into a revealed preference framework," Resource and Energy Economics, Elsevier, Elsevier, vol. 33(2), pages 381-397, May.
  2. Christian Gollier & James Hammitt & Nicolas Treich, 2013. "Risk and choice: A research saga," Journal of Risk and Uncertainty, Springer, Springer, vol. 47(2), pages 129-145, October.
  3. Berger, Loïc & Bleichrodt, Han & Eeckhoudt, Louis, 2013. "Treatment decisions under ambiguity," Journal of Health Economics, Elsevier, Elsevier, vol. 32(3), pages 559-569.
  4. Hippolyte d'Albis & Emmanuel Thibault, 2012. "Ambiguous Life Expectancy and the Demand for Annuities," Documents de travail du Centre d'Economie de la Sorbonne, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne 12050, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  5. Aurelien Baillon & Olivier L'Haridon & Laetitia Placido, 2011. "Ambiguity Models and the Machina Paradoxes," American Economic Review, American Economic Association, American Economic Association, vol. 101(4), pages 1547-60, June.
  6. Courbage, Christophe & Rey, Béatrice & Treich, Nicolas, 2013. "Prevention and precaution," TSE Working Papers, Toulouse School of Economics (TSE) 13-445, Toulouse School of Economics (TSE).
  7. Huang, Rachel J. & Huang, Yi-Chieh & Tzeng, Larry Y., 2013. "Insurance bargaining under ambiguity," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 812-820.
  8. Johansson-Stenman, Olof, 2010. "Health Investments Under Risk And Ambiguity," Working Papers in Economics, University of Gothenburg, Department of Economics 443, University of Gothenburg, Department of Economics.
  9. Gollier, Christian & Alary, David, 2008. "Should more ambiguity averse agents exert more effort ?," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/6500, Paris Dauphine University.
  10. Athanassoglou, Stergios & Xepapadeas, Anastasios, 2012. "Pollution control with uncertain stock dynamics: When, and how, to be precautious," Journal of Environmental Economics and Management, Elsevier, vol. 63(3), pages 304-320.
  11. Athanassoglou, Stergios & Bosetti, Valentina, 2012. "Setting environmental policy when experts disagree," MPRA Paper 57494, University Library of Munich, Germany.
  12. Rachel Croson & Nicolas Treich, 2014. "Behavioral Environmental Economics: Promises and Challenges," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 58(3), pages 335-351, July.
  13. repec:hal:journl:halshs-00721281 is not listed on IDEAS
  14. Alpizar, Francisco & Carlsson, Fredrik & Naranjo, Maria, 2009. "The effect of risk, ambiguity, and coordination on farmers’ adaptation to climate change: A framed field experiment," Working Papers in Economics, University of Gothenburg, Department of Economics 382, University of Gothenburg, Department of Economics.
  15. Riddel, Mary, 2011. "Uncertainty and measurement error in welfare models for risk changes," Journal of Environmental Economics and Management, Elsevier, vol. 61(3), pages 341-354, May.

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