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Complementarity and the Measurement of Individual Risk Tradeoffs: Accounting for Quantity and Quality of Life Effects

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Author Info
Mary F. Evans
V. Kerry Smith

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Abstract

This paper considers the factors responsible for differences with age in estimates of the wage compensation an individual requires to accept increased occupational fatality risk. We derive a relationship between the value of a statistical life (VSL) and the degree of complementarity between consumption and labor supplied when health status serves as a potential source of variation in this relationship. Our empirical analysis finds that variations in an individual's health status or quality of life and anticipated longevity threats lead to significant differences in the estimated wage/risk tradeoffs. We describe how extensions to the specification of hedonic wage models, including measures for quality of life and anticipated longevity threats, help to explain the diversity in past studies examining how the estimated wage–risk tradeoff changes with age.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13722.

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Date of creation: Jan 2008
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Handle: RePEc:nbr:nberwo:13722

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Find related papers by JEL classification:
I12 - Health, Education, and Welfare - - Health - - - Health Production
J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Evans, Mary F. & Smith, V. Kerry, 2006. "Do we really understand the age-VSL relationship?," Resource and Energy Economics, Elsevier, vol. 28(3), pages 242-261, August. [Downloadable!] (restricted)
  2. Hanemann, W Michael, 1991. "Willingness to Pay and Willingness to Accept: How Much Can They Differ?," American Economic Review, American Economic Association, vol. 81(3), pages 635-47, June. [Downloadable!] (restricted)
  3. Joseph E. Aldy & W. Kip Viscusi, 2008. "Adjusting the Value of a Statistical Life for Age and Cohort Effects," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 573-581, 04. [Downloadable!] (restricted)
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  4. Robert E Hall & Charles I Jones, 2007. "The Value of Life and the Rise in Health Spending," The Quarterly Journal of Economics, MIT Press, vol. 122(1), pages 39-72, 02. [Downloadable!] (restricted)
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  5. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Kip Viscusi, W. & Aldy, Joseph E., 2007. "Labor market estimates of the senior discount for the value of statistical life," Journal of Environmental Economics and Management, Elsevier, vol. 53(3), pages 377-392, May. [Downloadable!] (restricted)
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  7. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb.. [Downloadable!] (restricted)
  8. Smith, V. Kerry & Pattanayak, Subhrendu K. & Van Houtven, George L., 2003. "VSL reconsidered: what do labor supply estimates reveal about risk preferences?," Economics Letters, Elsevier, vol. 80(2), pages 147-153, August. [Downloadable!] (restricted)
  9. Burtless, Gary & Hausman, Jerry A, 1978. "The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiments," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1103-30, December. [Downloadable!] (restricted)
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  10. V. Kerry Smith & Donald H. Taylor Jr. & Frank A. Sloan, 2001. "Longevity Expectations and Death: Can People Predict Their Own Demise?," American Economic Review, American Economic Association, vol. 91(4), pages 1126-1134, September. [Downloadable!] (restricted)
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  11. Joseph E. Aldy & W. Kip Viscusi, 2004. "Age Variations in Workers' Value of Statistical Life," NBER Working Papers 10199, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Raj Chetty, 2006. "A New Method of Estimating Risk Aversion," American Economic Review, American Economic Association, vol. 96(5), pages 1821-1834, December. [Downloadable!]
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  13. Barsky, Robert B, et al, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 537-79, May.
  14. Jason F. Shogren & Tommy Stamland, 2002. "Skill and the Value of Life," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1168-1197, October. [Downloadable!] (restricted)
  15. V. Kerry Smith & Mary F. Evans & Hyun Kim & Donald H. Taylor, 2004. "Do the Near-Elderly Value Mortality Risks Differently?," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 423-429, 03. [Downloadable!] (restricted)
  16. François Bourguignon & Martin Fournier & Marc Gurgand, 2007. "Selection Bias Corrections Based On The Multinomial Logit Model: Monte Carlo Comparisons," Journal of Economic Surveys, Blackwell Publishing, vol. 21(1), pages 174-205, 02. [Downloadable!] (restricted)
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  17. Aldy, Joseph E. & Viscusi, W. Kip, 2007. "Age Differences in the Value of Statistical Life: Revealed Preference Evidence," Discussion Papers dp-07-05, Resources For the Future. [Downloadable!]
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  18. Eeckhoudt, Louis R & Hammitt, James K, 2001. " Background Risks and the Value of a Statistical Life," Journal of Risk and Uncertainty, Springer, vol. 23(3), pages 261-79, November. [Downloadable!] (restricted)
  19. Eeckhoudt, Louis R. & Hammitt, James K., 2004. "Does risk aversion increase the value of mortality risk?," Journal of Environmental Economics and Management, Elsevier, vol. 47(1), pages 13-29, January. [Downloadable!] (restricted)
  20. Ivar Ekeland & James J. Heckman & Lars Nesheim, 2002. "Identifying Hedonic Models," American Economic Review, American Economic Association, vol. 92(2), pages 304-309, May. [Downloadable!]
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  21. Pratt, John W & Zeckhauser, Richard J, 1996. "Willingness to Pay and the Distribution of Risk and Wealth," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 747-63, August. [Downloadable!] (restricted)
  22. Alan Krupnick, 2007. "Mortality-risk Valuation and Age: Stated Preference Evidence," Review of Environmental Economics and Policy, Oxford University Press for Association of Environmental and Resource Economists, vol. 1(2), pages 261-282, Summer. [Downloadable!] (restricted)
  23. Louis Kaplow, 2005. "The Value of a Statistical Life and the Coefficient of Relative Risk Aversion," Journal of Risk and Uncertainty, Springer, vol. 31(1), pages 23-34, July. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Mary F. Evans & V. Kerry Smith, 2009. "Measuring How Risk Tradeoffs Adjust With Income," NBER Working Papers 15372, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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