Beyond Expected Utility in the Economics of Health and Longevity
AbstractWe document various limitations of the expected utility model for the study of health and longevity. The model assumes individuals are indifferent between early and late resolution of uncertainty. This assumption gives rise to predictions regarding the economic value of life that are inconsistent with relevant evidence. For example, poor individuals would price life below the present value of foregone income or even negatively. We show that a non-expected utility model disentangling intertemporal substitution from risk aversion can overcome these limitations. We illustrate the quantitative implications of our model for the economic value of life across countries and time.
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Bibliographic InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 36067.
Date of creation: 28 Mar 2013
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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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life expectancy; value of statistical life; mortality risk aversion; Epstein-Zin-Weil pref- erences; Welfare; AIDS.;
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This paper has been announced in the following NEP Reports:
- NEP-AGE-2013-04-06 (Economics of Ageing)
- NEP-ALL-2013-04-06 (All new papers)
- NEP-DGE-2013-04-06 (Dynamic General Equilibrium)
- NEP-HEA-2013-04-06 (Health Economics)
- NEP-UPT-2013-04-06 (Utility Models & Prospect Theory)
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- Harenberg, Daniel & Ludwig, Alexander, 2014. "Social security and the interactions between aggregate and idiosyncratic risk," SAFE Working Paper Series 59, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
- Weil, David N., 2014. "Health and Economic Growth," Handbook of Economic Growth, in: Handbook of Economic Growth, edition 1, volume 2, chapter 3, pages 623-682 Elsevier.
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