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Did We Overestimate the Value of Health?

  • Lalive, Rafael

Adam Smith's idea that wage differences reveal preferences for risk rests on strong theoretical foundations. This paper argues, however, that the dominant approach to identify compensating wage differentials--regressing individual wages on aggregate measures of risk--may lead to arbitrary estimates of these risk differentials. In a dataset with information on both, the incidence of illnesses or injuries across firms and industries, I calculate an implicit value of one injury or illness of about (1990) USD 18,800 pursuing the dominant approach. In contrast, regressing wages on the incidence of risk across firms produces a value of one injury or illness of about USD 11,300. Copyright 2003 by Kluwer Academic Publishers

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Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 27 (2003)
Issue (Month): 2 (October)
Pages: 171-93

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Handle: RePEc:kap:jrisku:v:27:y:2003:i:2:p:171-93
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