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The Value of a Statistical Life and the Coefficient of Relative Risk Aversion

  • Louis Kaplow

Individuals’ risk preferences are estimated and employed in a variety of settings, notably including choices in financial, labor, and product markets. Recent work, especially in financial economics, provides estimates of individuals’ coefficients of relative risk aversion (R’s) in excess of one, and often significantly higher. However, it can be shown that high R’s imply equally high values for the income elasticity of the value of a statistical life. Yet estimates of this elasticity, derived from labor and product markets, are in the range of 0.5 to 0.6. Furthermore, it turns out that even an R below one is difficult to reconcile with these elasticity estimates. Thus, there appears to be an important (additional) anomaly involving individuals’ risk-taking behavior in different market settings. Copyright Springer Science + Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s11166-005-2928-1
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Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 31 (2005)
Issue (Month): 1 (July)
Pages: 23-34

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Handle: RePEc:kap:jrisku:v:31:y:2005:i:1:p:23-34
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100299

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