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On the Value of Changes in Life Expectancy: Blips versus Parametric Changes

Author

Listed:
  • Johannesson, Magnus

    () (Department of Economics)

  • Johansson, Per-Olov

    () (Department of Economics)

  • Löfgren, Karl-Gustaf

    (Dept. of Economics, University of Umeå)

Abstract

Previous studies indicate that the general public would prefer to reallocate medical resources from old people to young ones, and also has a low WTP for measures that increase the survival probability at an advanced age. In this paper, we present an analysis of the value of a ‘blip’, i.e. an immediate small reduction, in the hazard rate for a random sample of Swedes. Since the risk reduction is age-independent (2 ‘extra saved lives’ out of 10,000 during the next year), we can examine how the WTP and the implied value of a statistical life vary with age. We also show how blip data can be used to obtain a lower bound for the value of a parametric, i.e. permanent, change in an individual’s hazard rate. This approach avoids asking respondents to perform the tricky task of estimating, for example, their entire future survival and income paths, a task which is necessary in order to estimate the WTP for a change lasting over their remaining life cycle. The estimated willingness to pay as well as the implied value of a statistical life are very reasonable, The value of life exhibits an inverted-U shape with respect to age, peaking at the age of 40, and falls in the $3 to $7 million interval where most reasonable estimates are clustered according to Viscusi’s (1992) survey.

Suggested Citation

  • Johannesson, Magnus & Johansson, Per-Olov & Löfgren, Karl-Gustaf, 1997. "On the Value of Changes in Life Expectancy: Blips versus Parametric Changes," SSE/EFI Working Paper Series in Economics and Finance 152, Stockholm School of Economics.
  • Handle: RePEc:hhs:hastef:0152
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    Keywords

    Willingness to pay; insurance; life expectancy; statistical life; ageing;

    JEL classification:

    • I10 - Health, Education, and Welfare - - Health - - - General
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • D10 - Microeconomics - - Household Behavior - - - General
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate

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