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The Value of Life: A Labor-Based Theory

Author

Listed:
  • Khoury Sarkis Joseph

    (University of California, Riverside)

  • Arayssi Mahmoud

    (American University of Beirut, Lebanon)

Abstract

This paper develops a labor-based model where a worker chooses between not only work and leisure, as the traditional labor models have argued, but rather between labor, leisure and the purchase of insurance. The model allows the insurance buyer to determine the amount of insurance he is willing to work for and purchase while maximizing utility and deriving the shadow price of risk, thus, the value of life. The model is applied to quadratic, logarithmic, and exponential utility functions. Results can help insurance companies determine the cost of insurance associated with a specific job and related risk.

Suggested Citation

  • Khoury Sarkis Joseph & Arayssi Mahmoud, 2008. "The Value of Life: A Labor-Based Theory," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 3(1), pages 1-29, July.
  • Handle: RePEc:bpj:jbvela:v:3:y:2008:i:1:n:5
    as

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    References listed on IDEAS

    as
    1. Orley Ashenfelter, 2006. "Measuring the Value of a Statistical Life: Problems and Prospects," Economic Journal, Royal Economic Society, vol. 116(510), pages 10-23, March.
    2. Millimet, Daniel L. & Nieswiadomy, Michael & Ryu, Hang & Slottje, Daniel, 2003. "Estimating worklife expectancy: an econometric approach," Journal of Econometrics, Elsevier, vol. 113(1), pages 83-113, March.
    3. Orley Ashenfelter, 2005. "Measuring the Value of a Statistical Life: Problems and Prospects," Working Papers 884, Princeton University, Department of Economics, Industrial Relations Section..
    4. Dobbs, Ian M., 1999. "Compensating wage differentials and the value of life," Economics Letters, Elsevier, vol. 63(1), pages 103-109, April.
    5. Viscusi, W Kip, 1993. "The Value of Risks to Life and Health," Journal of Economic Literature, American Economic Association, vol. 31(4), pages 1912-1946, December.
    6. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-648, July-Aug..
    7. Landefeld, J.S. & Seskin, E.P., 1982. "The economic value of life: linking theory to practice," American Journal of Public Health, American Public Health Association, vol. 72(6), pages 555-566.
    8. Lauraine G. Chestnut & Daniel M. Violette, 1990. "The Relevance of Willingness-To-Pay Estimates of The Value of a Statistical Life in Determining Wrongful Death Awards," Journal of Forensic Economics, National Association of Forensic Economics, vol. 3(3), pages 75-89, September.
    9. Marin, Alan & Psacharopoulos, George, 1982. "The Reward for Risk in the Labor Market: Evidence from the United Kingdom and a Reconciliation with Other Studies," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 827-853, August.
    10. Altman, Morris, 2001. "A behavioral model of labor supply: casting some light into the black box of income-leisure choice," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 30(3), pages 199-219, May.
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