The Dead-anyway Effect Revis(it)ed
In the expected-utility theory of the monetary value of a statistical life, the so-called “dead-anyway” effect discovered by Pratt and Zeckhauser (1996) asserts that an individuals' willingness to pay (WTP) for small reductions in mortality risk increases with the initial level of risk. Their reasoning is based on differences in the marginal utility of wealth between the two states of nature: life and death. However, this explanation is based on the absence of markets for contingent claims, i.e. annuities and life insurance. This paper reexamines the “dead-anyway” effect and establishes two main results: first, for a risk-averse individual without a bequest motive, marginal WTP for survival does increase with the level of risk but when insurance markets are perfect, this occurs for a different reason than given by Pratt and Zeckhauser. Secondly, when the individual has a bequest motive and is endowed with a sufficient amount of non-inheritable wealth, the effect of initial risk on WTP for survival is reversed: the higher initial risk the lower the value of a statistical life.
|Date of creation:||2002|
|Contact details of provider:|| Postal: Poschingerstrasse 5, 81679 Munich|
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo-group.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Felder, Stefan & Meier, Markus & Schmitt, Horst, 2000. "Health care expenditure in the last months of life," Journal of Health Economics, Elsevier, vol. 19(5), pages 679-695, September.
- 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.
- Hammitt, James K & Graham, John D, 1999. "Willingness to Pay for Health Protection: Inadequate Sensitivity to Probability?," Journal of Risk and Uncertainty, Springer, vol. 18(1), pages 33-62, April.
- Rosen, Sherwin, 1988.
"The Value of Changes in Life Expectancy,"
Journal of Risk and Uncertainty,
Springer, vol. 1(3), pages 285-304, September.
- Sherwin Rosen, "undated". "The Value of Changes in Life Expectancy," University of Chicago - Population Research Center 87-14, Chicago - Population Research Center.
- Smith, V Kerry & Desvousges, William H, 1987. "An Empirical Analysis of the Economic Value of Risk Changes," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 89-114, February.
- Friedrich Breyer & Markus M. Grabka, 2001. "Is There a "Dead-Anyway" Effect in Willingness to Pay for Risk Reduction?," Discussion Papers of DIW Berlin 252, DIW Berlin, German Institute for Economic Research.
- Pratt, John W & Zeckhauser, Richard J, 1996. "Willingness to Pay and the Distribution of Risk and Wealth," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 747-763, August. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_805. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Klaus Wohlrabe)
If references are entirely missing, you can add them using this form.