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Valuing life under the shadow of death : on stationary lifetime preferences under uncertainty

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Author Info
Antoine Bommier ()

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Abstract

This paper develops an axiomatic construction of preferences that allows to compare lotteries involving lives of different lengths. Our axioms which basically formalize two assumptions - individuals are rational and have stationary preferences - leads to a class of utility functions that is much larger than the set of separable additive utility functions. We discuss a number of appealing properties associated with non additive utility functions and explore the implications for life cycle behavior. The results lead to a fundamental shift in how the risk of death may be expected to affect intertemporal choices. In particular, the rate of time discounting is shown to be related to mortality and to the way life is valued. This explains why "impatience" may significantly vary along the life cycle as well as why it may change with time during periods of mortality decline. Reciprocally, information on the value of life can also be derived from the variation of the rate of time discounting.

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Publisher Info
Paper provided by Laboratoire d'Economie Appliquee, INRA in its series Research Unit Working Papers with number 0301.

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Length: 46 pages
Date of creation: Oct 2002
Date of revision:
Handle: RePEc:lea:leawpi:0301

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Related research
Keywords: Value of life; Intertemporal choice; life cycle models;

Other versions of this item:

Find related papers by JEL classification:
J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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  1. Rosen, Sherwin, 1988. " The Value of Changes in Life Expectancy," Journal of Risk and Uncertainty, Springer, vol. 1(3), pages 285-304, September.
    Other versions:
  2. Heal, Geoffrey & Ryder, Harl E, 1976. "Reply to "A Note on Complementarity Over Time."," Review of Economic Studies, Blackwell Publishing, vol. 43(1), pages 183-84, February. [Downloadable!] (restricted)
  3. Epstein, Larry G., 1987. "A simple dynamic general equilibrium model," Journal of Economic Theory, Elsevier, vol. 41(1), pages 68-95, February. [Downloadable!] (restricted)
  4. Viscusi, W. Kip & Moore, Michael J., 1989. "Rates of time preference and valuations of the duration of life," Journal of Public Economics, Elsevier, vol. 38(3), pages 297-317, April. [Downloadable!] (restricted)
  5. Daniel S. Hamermesh, 1984. "Consumption During Retirement: The Missing Link in the Life Cycle," NBER Working Papers 0930, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Ehrlich, Isaac, 2000. "Uncertain lifetime, life protection, and the value of life saving," Journal of Health Economics, Elsevier, vol. 19(3), pages 341-367, May. [Downloadable!] (restricted)
  7. Ryder, Harl E, Jr & Heal, Geoffrey M, 1973. "Optimum Growth with Intertemporally Dependent Preferences," Review of Economic Studies, Blackwell Publishing, vol. 40(1), pages 1-33, January. [Downloadable!] (restricted)
  8. Tomas J. Philipson & Gary S. Becker, 1998. "Old-Age Longevity and Mortality-Contingent Claims," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 551-573, June. [Downloadable!] (restricted)
  9. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  10. Banks, James & Blundell, Richard & Tanner, Sarah, 1998. "Is There a Retirement-Savings Puzzle?," American Economic Review, American Economic Association, vol. 88(4), pages 769-88, September. [Downloadable!] (restricted)
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  11. Ehrlich, Isaac & Chuma, Hiroyuki, 1990. "A Model of the Demand for Longevity and the Value of Life Extension," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 761-82, August. [Downloadable!] (restricted)
  12. Viscusi, W Kip & Evans, William N, 1990. "Utility Functions That Depend on Health Status: Estimates and Economic Implications," American Economic Review, American Economic Association, vol. 80(3), pages 353-74, June. [Downloadable!] (restricted)
  13. Epstein, Larry G & Hynes, J Allan, 1983. "The Rate of Time Preference and Dynamic Economic Analysis," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 611-35, August. [Downloadable!] (restricted)
  14. Epstein, Larry G., 1983. "Stationary cardinal utility and optimal growth under uncertainty," Journal of Economic Theory, Elsevier, vol. 31(1), pages 133-152, October. [Downloadable!] (restricted)
  15. Moresi, Serge, 1999. "Uncertain lifetime, risk aversion and intertemporal substitution," Economics Letters, Elsevier, vol. 62(2), pages 207-212, February. [Downloadable!] (restricted)
  16. Harris, Christopher & Laibson, David, 2001. "Dynamic Choices of Hyperbolic Consumers," Econometrica, Econometric Society, vol. 69(4), pages 935-57, July.
    Other versions:
  17. Epstein, Larry G & Zin, Stanley E, 1989. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework," Econometrica, Econometric Society, vol. 57(4), pages 937-69, July. [Downloadable!] (restricted)
  18. Narayana R. Kocherlakota, 1996. "The Equity Premium: It's Still a Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 42-71, March. [Downloadable!] (restricted)
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  19. Biswas, Tapan, 1976. "A Note on Complementarity Over Time," Review of Economic Studies, Blackwell Publishing, vol. 43(1), pages 179-81, February. [Downloadable!] (restricted)
  20. Fishburn, Peter C, 1978. "Ordinal Preferences and Uncertain Lifetimes," Econometrica, Econometric Society, vol. 46(4), pages 817-33, July. [Downloadable!] (restricted)
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