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Risk Aversion and the Value of Risk to Life

Author

Listed:
  • Antoine Bommier
  • Bertrand Villeneuve

Abstract

This paper argues for an alternative methodology to estimate the value of risk to life. By relaxing the assumption of additive separability, we introduce risk aversion with respect to the length of life and show that the extended model better fits available data. This is crucial for the extrapolation stage that the evaluation of life-saving programs systematically requires. Current practice, we show, puts too little weight on the young. Our correction surpasses 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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Suggested Citation

  • Antoine Bommier & Bertrand Villeneuve, 2012. "Risk Aversion and the Value of Risk to Life," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 79(1), pages 77-104, March.
    • Handle: RePEc:bla:jrinsu:v:79:y:2012:i:1:p:77-104
    DOI: j.1539-6975.2010.01390.x
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    File URL: http://hdl.handle.net/10.1111/j.1539-6975.2010.01390.x
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    Citations

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    Cited by:

    1. Antoine Bommier & Marie-Louise Leroux & Jean-Marie Lozachmeur, 2011. "Differential mortality and social security," Canadian Journal of Economics, Canadian Economics Association, vol. 44(1), pages 273-289, February.
    2. Antoine Bommier, 2005. "Life-Cycle Theory for Human Beings," Working Papers hal-00441890, HAL.
    3. Thomas J. Sargent & John Stachurski, 2024. "Dynamic Programming: Finite States," Papers 2401.10473, arXiv.org.
    4. Svetlana Pashchenko & Ponpoje Porapakkarm, 2022. "Value of life and annuity demand," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 89(2), pages 371-396, June.
    5. Schernberg, Hélène, 2025. "Social genetic insurance: A life-cycle perspective," Journal of Health Economics, Elsevier, vol. 101(C).
    6. Péter Hudomiet & Robert J. Willis, 2013. "Estimating Second Order Probability Beliefs from Subjective Survival Data," Decision Analysis, INFORMS, vol. 10(2), pages 152-170, June.
    7. Antoine Bommier, 2010. "Portfolio Choice under Uncertain Lifetime," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(1), pages 57-73, February.
    8. Benjamin Avanzi & Lewis de Felice, 2023. "Optimal Strategies for the Decumulation of Retirement Savings under Differing Appetites for Liquidity and Investment Risks," Papers 2312.14355, arXiv.org, revised Mar 2024.
    9. Delprat, G. & Leroux, M.-L. & Michaud, P.-C., 2016. "Evidence on individual preferences for longevity risk," Journal of Pension Economics and Finance, Cambridge University Press, vol. 15(2), pages 160-179, April.
    10. Antoine Bommier, 2008. "Rational Impatience ?," Working Papers hal-00441880, HAL.
    11. Caliendo, Frank N. & Gorry, Aspen & Slavov, Sita, 2020. "Survival ambiguity and welfare," Journal of Economic Behavior & Organization, Elsevier, vol. 170(C), pages 20-42.
    12. Franco Mariuzzo & Patrick Paul Walsh & Ciara Whelan, 2004. "EU Merger Control in Differentiated Product Industries," CESifo Working Paper Series 1312, CESifo.
    13. 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.
    14. James Hammitt, 2013. "Admissible utility functions for health, longevity, and wealth: integrating monetary and life-year measures," Journal of Risk and Uncertainty, Springer, vol. 47(3), pages 311-325, December.
    15. Bommier, Antoine & Lanz, Bruno & Zuber, Stéphane, 2015. "Models-as-usual for unusual risks? On the value of catastrophic climate change," Journal of Environmental Economics and Management, Elsevier, vol. 74(C), pages 1-22.
    16. Georges Dionne & Martin Lebeau, 2010. "Le calcul de la valeur statistique d’une vie humaine," L'Actualité Economique, Société Canadienne de Science Economique, vol. 86(4), pages 487-530.
    17. Ian W R Martin & Robert S Pindyck, 2021. "Welfare Costs of Catastrophes: Lost Consumption and Lost Lives," The Economic Journal, Royal Economic Society, vol. 131(634), pages 946-969.
    18. Ryan Edwards, 2013. "The cost of uncertain life span," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(4), pages 1485-1522, October.
    19. Arthur E. Attema & Jona J. Frasch & Olivier L’Haridon, 2022. "Multivariate risk preferences in the quality‐adjusted life year model," Health Economics, John Wiley & Sons, Ltd., vol. 31(2), pages 382-398, February.
    20. Juan Carlos CóRdoba & Marla Ripoll, 2017. "Risk Aversion and the Value of Life," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(4), pages 1472-1509.
    21. Scott Pataya & Liang Daan, 2016. "What is the Economics of Wind Hazard Mitigation?," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 11(1), pages 25-29, June.
    22. Strand, Jon, 2006. "Valuation of environmental improvements in continuous time with mortality and morbidity effects," Resource and Energy Economics, Elsevier, vol. 28(3), pages 229-241, August.
    23. Antoine Bommier, 2006. "Mortality, Time Preference and Life-Cycle Models," Working Papers hal-00441888, HAL.

    More about this item

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income

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