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Using Job Changes to Evaluate the Bias of the Value of a Statistical Life

  • Hannes Spengler
  • Sandra Schaffner

This paper presents a new approach to obtain unbiased estimates of the value of a statistical life (VSL) with labor market data. Investigating job changes, we combine the advantages of recent panel studies, which allow to control for unobserved heterogeneity of workers, and conventional cross-sectional estimations, which primarily exploit the variation of wage and risk between different jobs. We find a VSL of 6.1 million euros from pooled cross-sectional estimation, 1.9 million euros from the static first-differences panel model and 3.5 million euros from the job-changer specification. Thus, ignoring individual heterogeneity causes overestimates of the VSL, whereas identifying the wage-risk tradeoff not only by means of between job variation (job-changer model) but also on the basis of noisy variation on the job (panel models) may lead to underestimates of the VSL. Our results can be used to perform cost-benefit analyses of public projects aimed at reducing fatality risks, e.g., in the domains of health, environmental or traffic policy.

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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 713.

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Length: 38 p.
Date of creation: 2007
Date of revision:
Handle: RePEc:diw:diwwpp:dp713
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  1. Jason F. Shogren & Tommy Stamland, 2002. "Skill and the Value of Life," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1168-1197, October.
  2. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  3. repec:reg:rpubli:282 is not listed on IDEAS
  4. Viscusi, W Kip, 1993. "The Value of Risks to Life and Health," Journal of Economic Literature, American Economic Association, vol. 31(4), pages 1912-46, December.
  5. Schaffner, Sandra & Spengler, Hannes, 2005. "Der Einfluss unbeobachteter Heterogenität auf kompensatorische Lohndifferentiale und den Wert eines Statistischen Lebens: Eine mikroökonometrische Parallelanalyse mit IABS und SOEP," Darmstadt Discussion Papers in Economics 36800, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
  6. W. Kip Viscusi & Joseph E. Aldy, 2003. "The Value of a Statistical Life: A Critical Review of Market Estimates throughout the World," NBER Working Papers 9487, National Bureau of Economic Research, Inc.
  7. Thomas J. Kniesner & W. Kip Viscusi & Christopher Woock & James P. Ziliak, 2006. "Pinning Down the Value of Statistical Life," Center for Policy Research Working Papers 85, Center for Policy Research, Maxwell School, Syracuse University.
  8. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  9. Spengler, Hannes, 2004. "Kompensatorische Lohndifferenziale und der Wert eines statistischen Lebens in Deutschland," Darmstadt Discussion Papers in Economics 37281, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
  10. Thomas J. Kniesner & W. Kip Viscusi & Christopher Woock & James P. Ziliak, 2005. "How Unobservable Productivity Biases the Value of a Statistical Life," NBER Working Papers 11659, National Bureau of Economic Research, Inc.
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