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Risk Aversion and the Value of Risk to Life

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Abstract

The standard literature on the value of life relies on Yaari’s (1965) model, which includes an implicit assumption of risk neutrality with respect to life duration. To overpass this limitation, we extend the theory to a simple variety of preferences which are not necessarily additively separable. The enlargement we propose is relevant for the evaluation of life-saving programs: current practice, we estimate, puts too little weight on mortality risk reduction of the young. Our correction exceeds in magnitude that introduced by the switch from the notion of number of lives saved to the notion of years of life saved.

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Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 10/133.

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Length: 41 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:eth:wpswif:10-133

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Keywords: Value of Statistical Life; Lifecycle Behavior; Cost-benefit Analysis;

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References

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Citations

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Cited by:
  1. James Hammitt, 2013. "Admissible utility functions for health, longevity, and wealth: integrating monetary and life-year measures," Journal of Risk and Uncertainty, Springer, Springer, vol. 47(3), pages 311-325, December.
  2. Antoine Bommier, 2008. "Rational Impatience ?," Working Papers hal-00441880, HAL.
  3. Dionne, Georges & Lebeau, Martin, 2010. "Le calcul de la valeur statistique d’une vie humaine," L'Actualité Economique, Société Canadienne de Science Economique, Société Canadienne de Science Economique, vol. 86(4), pages 487-530, décembre.
  4. Strand, Jon, 2006. "Valuation of environmental improvements in continuous time with mortality and morbidity effects," Resource and Energy Economics, Elsevier, Elsevier, vol. 28(3), pages 229-241, August.
  5. Antoine Bommier, 2006. "Mortality, Time Preference and Life-Cycle Models," Working Papers hal-00441888, HAL.
  6. Antoine Bommier, 2005. "Life-Cycle Theory for Human Beings," Working Papers hal-00441890, HAL.
  7. Péter Hudomiet & Robert J. Willis, 2012. "Estimating Second Order Probability Beliefs from Subjective Survival Data," NBER Working Papers 18258, National Bureau of Economic Research, Inc.
  8. Huaxiong Huang & Moshe A. Milevsky & Thomas S. Salisbury, 2012. "Optimal retirement consumption with a stochastic force of mortality," Papers 1205.2295, arXiv.org.
  9. Gaëtan Delprat & Marie-Louise Leroux & Pierre-Carl Michaud, 2013. "Evidence on Individual Preferences for Longevity Risk," CESifo Working Paper Series 4196, CESifo Group Munich.
  10. Huang, Huaxiong & Milevsky, Moshe A. & Salisbury, Thomas S., 2012. "Optimal retirement consumption with a stochastic force of mortality," Insurance: Mathematics and Economics, Elsevier, vol. 51(2), pages 282-291.

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