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Assuming The Can Opener: Hedonic Wage Estimates and the Value of Life

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  • William T. Dickens
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    Abstract

    Although intuitively appealing, the use of hedonic wage estimates to determine people's willingness to pay to avoid the risk of fatal hazards is fraught with problems. The theoretical basis for such estimates are flawed in a number of important ways. The underlying behavioral model is wrong, there is imperfect information about job hazards, and labor markets do not look like the perfectly competitive model on which the theory depends for its conclusions. Further, there are many serious problems with the techniques used to estimate hedonic wage equations. This paper describes these problems. Not surprisingly, these problems result in a wide range of results with respect to willingness to pay to avoid fatal hazards. It is argued that this wide range of results is not fully apparent in the literature because of the bias in publication towards positive as opposed to negative findings. The paper concludes that it is unlikely that economics has much to contribute to the public policy debate over the value of a life.

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    File URL: http://www.nber.org/papers/w3446.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3446.

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    Date of creation: Sep 1990
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    Publication status: published as Journal of Forensic Economics, Vol. III, No. 3, pp. 51-60, Fall, 1990.
    Handle: RePEc:nbr:nberwo:3446

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    References

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    1. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
    2. Dickens, William T, 1984. "Differences between Risk Premiums in Union and Nonunion Wages and the Case for Occupational Safety Regulation," American Economic Review, American Economic Association, vol. 74(2), pages 320-23, May.
    3. William T. Dickens & Brian A. Ross, 1984. "Consistent Estimation Using Data From More Than One Sample," NBER Technical Working Papers 0033, National Bureau of Economic Research, Inc.
    4. Paul Leigh, J., 1987. "Gender, firm size, industry, and estimates of the value-of-life," Journal of Health Economics, Elsevier, vol. 6(3), pages 255-273, September.
    5. William T. Dickens & Lawrence F. Katz, 1986. "Interindustry Wage Differences and Industry Characteristics," NBER Working Papers 2014, National Bureau of Economic Research, Inc.
    6. Alan B. Krueger & Lawrence H. Summers, 1986. "Reflections on the Inter-Industry Wage Structure," NBER Working Papers 1968, National Bureau of Economic Research, Inc.
    7. Viscusi, W Kip & O'Connor, Charles J, 1984. "Adaptive Responses to Chemical Labeling: Are Workers Bayesian Decision Makers?," American Economic Review, American Economic Association, vol. 74(5), pages 942-56, December.
    8. Brown, Charles, 1980. "Equalizing Differences in the Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 94(1), pages 113-34, February.
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    Cited by:
    1. Berg, Nathan, 2006. "Behavioral Labor Economics," MPRA Paper 26366, University Library of Munich, Germany.
    2. Burtraw, Dallas & Krupnick, Alan J., 1996. "The second-best use of social cost estimates," Resource and Energy Economics, Elsevier, vol. 18(4), pages 467-489, December.
    3. Aaron Lowen & Paul Sicilian, 2009. "“Family-Friendly” Fringe Benefits and the Gender Wage Gap," Journal of Labor Research, Springer, vol. 30(2), pages 101-119, June.

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