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Mortality Risk and the Value of a Statistical Life: The Dead-Anyway Effect Revis(it)ed

Author

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  • Friedrich Breyer

    (Department of Economics, University of Konstanz and DIW Berlin)

  • Stefan Felder

    (Faculties of Medicine and Economics, University of Magdeburg)

Abstract

In the expected-utility theory of the monetary value of a statistical life, a well-known result found by Pratt and Zeckhauser [1996] asserts that an individuals' willingness to pay (WTP) for a marginal reduction in mortality risk increases with the initial level of risk. Their reasoning is based on the so-called “dead-anyway effect” which states that marginal utility of a dollar in the state of death is smaller than in the state of survival. However, this explanation is based on the absence of markets for contingent claims, i.e. annuities and life insurance. This paper reexamines the relationship between WTP and the level of risk under more general circumstances and establishes two main results: first, when insurance markets are perfect, for a risk-averse individual without a bequest motive, marginal WTP for survival does increase with the level of risk but this occurs for a different reason, namely an income effect. Secondly, when the individual has a bequest motive and is endowed with a sufficient amount of wealth from human capital, the effect of initial risk on WTP for survival is reversed: the higher initial risk the lower the value of a statistical life. In the imperfect-markets case we interpret this result as a “constrained-bequest effect”. The Geneva Risk and Insurance Review (2005) 30, 41–55. doi:10.1007/s10836-005-1107-2

Suggested Citation

  • Friedrich Breyer & Stefan Felder, 2005. "Mortality Risk and the Value of a Statistical Life: The Dead-Anyway Effect Revis(it)ed," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 30(1), pages 41-55, June.
    • Handle: RePEc:pal:genrir:v:30:y:2005:i:1:p:41-55
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    Cited by:

    1. Felder, Stefan, 2020. "The treatment decision under uncertainty: The effects of health, wealth and the probability of death," Journal of Health Economics, Elsevier, vol. 69(C).
    2. Bellavance, Franois & Dionne, Georges & Lebeau, Martin, 2009. "The value of a statistical life: A meta-analysis with a mixed effects regression model," Journal of Health Economics, Elsevier, vol. 28(2), pages 444-464, March.
    3. Henrik Andersson & Nicolas Treich, 2011. "The Value of a Statistical Life," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 17, Edward Elgar Publishing.
    4. Treich, Nicolas, 2010. "The value of a statistical life under ambiguity aversion," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 15-26, January.
    5. James Hammitt & Nicolas Treich, 2007. "Statistical vs. identified lives in benefit-cost analysis," Journal of Risk and Uncertainty, Springer, vol. 35(1), pages 45-66, August.
    6. Scotton, Carol R. & Taylor, Laura O., 2011. "Valuing risk reductions: Incorporating risk heterogeneity into a revealed preference framework," Resource and Energy Economics, Elsevier, vol. 33(2), pages 381-397, May.
    7. 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.

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