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Birds of a Feather: Estimating the Value of Statistical Life from Dual-Earner Families

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  • Aldy, Joseph

    (Harvard Kennedy School)

Abstract

Economists have long employed hedonic wage analysis to estimate income-fatality risk trade-offs, but some scholars have raised concerns about systematic measurement error and omitted variable bias in the empirical applications of this model. Recent studies have employed panel methods to remove time-invariant individual-specific characteristics that could induce bias in estimation. In an analogous manner, this paper proposes to exploit assortative matching on risk attitudes within married couples to control for worker characteristics that are unobserved to the econometrician. I develop and implement a modified hedonic wage estimator based on a within-coupled differenced wage equation for full-time working married couples with the Current Population Survey Merged Outgoing Rotation Group over 1996-2002. The key assumption builds on the findings in the assortative matching literature that individuals often marry those who have common traits across many dimensions, including those that may influence worker wages and are correlated with observed occupational fatality risks. This estimator identifies the compensating differential for occupation fatality risk by using within-couple differencing to remove unobserved determinants of risk attitudes and risk-mitigation ability, on which couples match, from the error term. I find that the value of statistical life (VSL) varies from $9 to $13 million (2016$). The within-couple differenced VSL estimates are stable and more robust to variation in specification of the hedonic wage model than conventional, cross-sectional hedonic wage models. I also find that the value of statistical life takes an inverted-U shape with respect to age.

Suggested Citation

  • Aldy, Joseph, 2019. "Birds of a Feather: Estimating the Value of Statistical Life from Dual-Earner Families," Working Paper Series rwp19-013, Harvard University, John F. Kennedy School of Government.
  • Handle: RePEc:ecl:harjfk:rwp19-013
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    Cited by:

    1. James K. Hammitt, 2020. "Valuing mortality risk in the time of COVID-19," Journal of Risk and Uncertainty, Springer, vol. 61(2), pages 129-154, October.
    2. Thomas J. Kniesner & W. Kip Viscusi, 2023. "Compensating Differentials for Occupational Health and Safety Risks: Implications of Recent Evidence," Research in Labor Economics, in: 50th Celebratory Volume, volume 50, pages 83-116, Emerald Group Publishing Limited.
    3. Ian W R Martin & Robert S Pindyck, 2021. "Welfare Costs of Catastrophes: Lost Consumption and Lost Lives," The Economic Journal, Royal Economic Society, vol. 131(634), pages 946-969.
    4. James K. Hammitt & Jin-Tan Liu & Jin-Long Liu, 2022. "Is survival a luxury good? Income elasticity of the value per statistical life," Journal of Risk and Uncertainty, Springer, vol. 65(3), pages 239-260, December.
    5. W. Kip Viscusi, 2019. "Risk guideposts for a safer society: Introduction and overview," Journal of Risk and Uncertainty, Springer, vol. 58(2), pages 101-119, June.
    6. Karger, Ezra, 2021. "The Long-Run Effect of Public Libraries on Children: Evidence from the Early 1900s," SocArXiv e8k7p, Center for Open Science.

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    More about this item

    JEL classification:

    • J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure
    • J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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