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Valuing Risk in the Workplace: Market Price, Willingness to Pay, and the Optimal Provision of Safety

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  • Herzog, Henry W, Jr
  • Schlottmann, Alan M

Abstract

The theory of compensating wage differentials, attributable to Adam Smith, suggests that jobs with disagreeable characteristics will command high wages, ceteris paribus. Most empirical tests of this theory with hedonic wage equations implicitly assume that workers' willingness to pay for risk reduction (safety) in the workplace through diminished wages and market valuations of the "price" of these reductions are equivalent. It is shown that this is not the case within the manufacturing sector where willingness to pay exceeds the price (cost) of risk reduction at current levels of risk exposure. Implications for implied value of life estimates are also examined. Copyright 1990 by MIT Press.

Suggested Citation

  • Herzog, Henry W, Jr & Schlottmann, Alan M, 1990. "Valuing Risk in the Workplace: Market Price, Willingness to Pay, and the Optimal Provision of Safety," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 463-470, August.
  • Handle: RePEc:tpr:restat:v:72:y:1990:i:3:p:463-70
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    Citations

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    Cited by:

    1. G. Dionne & P. Lanoie, 2002. "How to Make a Public Choice about the Value of a Statistical Life : The Case of Road Safety," THEMA Working Papers 2002-14, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    2. S. Madheswaran, 2008. "Measuring the Value of Life and Limb: Estimating Compensating Wage Differentials Among Workers in Chennai and Mumbai," Working Papers id:1708, eSocialSciences.
    3. 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.
    4. 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.
    5. S. Madheswaran, 2007. "Measuring the value of statistical life: estimating compensating wage differentials among workers in India," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 84(1), pages 83-96, October.
    6. Annamaria Nese & Roberta Troisi, 2014. "Individual Preferences and Job Characteristics: An Analysis of Cooperative Credit Banks," LABOUR, CEIS, vol. 28(2), pages 233-249, June.
    7. Viscusi, W Kip & Aldy, Joseph E, 2003. "The Value of a Statistical Life: A Critical Review of Market Estimates throughout the World," Journal of Risk and Uncertainty, Springer, vol. 27(1), pages 5-76, August.
    8. STEVEN C. DELLER & Thomas Ottem, 2001. "Crime and the Quality of Life in Wisconsin Counties," Wisconsin-Madison Agricultural and Applied Economics Staff Papers 442, Wisconsin-Madison Agricultural and Applied Economics Department.
    9. Van Ommeren, Jos & Fosgerau, Mogens, 2009. "Workers' marginal costs of commuting," Journal of Urban Economics, Elsevier, vol. 65(1), pages 38-47, January.
    10. Dora L. Costa & Matthew E. Kahn, 2004. "Changes in the Value of Life, 1940--1980," Journal of Risk and Uncertainty, Springer, vol. 29(2), pages 159-180, September.
    11. Jos Van Ommeren & Mihails Hazans, 2008. "Workers' Valuation of the Remaining Employment Contract Duration," Economica, London School of Economics and Political Science, vol. 75(297), pages 116-139, February.
    12. Cottini, Elena & Kato, Takao & Westergaard-Nielsen, Niels, 2011. "Adverse workplace conditions, high-involvement work practices and labor turnover: Evidence from Danish linked employer–employee data," Labour Economics, Elsevier, vol. 18(6), pages 872-880.
    13. StÈphane Bonhomme & GrÈgory Jolivet, 2009. "The pervasive absence of compensating differentials," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(5), pages 763-795.
    14. Konstantinos, Pouliakas & Ioannis, Theodossiou, 2010. "An Inquiry Into the Theory, Causes and Consequences of Monitoring Indicators of Health and Safety At Work," MPRA Paper 20336, University Library of Munich, Germany.
    15. Scott, Anthony, 2001. "Eliciting GPs' preferences for pecuniary and non-pecuniary job characteristics," Journal of Health Economics, Elsevier, vol. 20(3), pages 329-347, May.
    16. Courard-Hauri David & Lauer Stephen A., 2012. "Taking "All Men Are Created Equal" Seriously: Toward a Metric for the Intergroup Comparison of Utility Functions Through Life Values," Journal of Benefit-Cost Analysis, De Gruyter, vol. 3(3), pages 1-30, August.
    17. Jos van Ommeren & Gerard J. van den Berg & Cees Gorter, 2000. "Estimating the Marginal Willingness to Pay for Commuting," Journal of Regional Science, Wiley Blackwell, vol. 40(3), pages 541-563.
    18. K. Shanmugam, 2000. "Valuations of Life and Injury Risks," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 16(4), pages 379-389, August.

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