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Beyond Expected Utility in the Economics of Health and Longevity

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  • Cordoba, Juan Carlos
  • Ripoll, Marla

Abstract

We document various limitations of the expected utility model for the study of health and longevity. The model assumes individuals are indifferent between early and late resolution of uncertainty. This assumption gives rise to predictions regarding the economic value of life that are inconsistent with relevant evidence. For example, poor individuals would price life below the present value of foregone income or even negatively. We show that a non-expected utility model disentangling intertemporal substitution from risk aversion can overcome these limitations. We illustrate the quantitative implications of our model for the economic value of life across countries and time.

Suggested Citation

  • Cordoba, Juan Carlos & Ripoll, Marla, 2013. "Beyond Expected Utility in the Economics of Health and Longevity," Staff General Research Papers Archive 36067, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:36067
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    File URL: http://www2.econ.iastate.edu/papers/p16067-2013-03-28.pdf
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    Cited by:

    1. Murtin, Fabrice & Boarini, Romina & Cordoba, Juan Carlos & Ripoll, Marla, 2017. "Beyond GDP: Is there a law of one shadow price?," European Economic Review, Elsevier, vol. 100(C), pages 390-411.
    2. Daniel Harenberg & Alexander Ludwig, "undated". "Social Security and the Interactions Between Aggregate and Idiosyncratic Risk," Working Papers ETH-RC-14-002, ETH Zurich, Chair of Systems Design.
    3. Weil, David N., 2014. "Health and Economic Growth," Handbook of Economic Growth,in: Handbook of Economic Growth, edition 1, volume 2, chapter 3, pages 623-682 Elsevier.
    4. Daniel Harenberg & Ludwig, Alexander, 2015. "Idiosyncratic Risk, Aggregate Risk, and the Welfare Effects of Social Security," MEA discussion paper series 201403, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    5. Juan Carlos Cordoba, 2015. "Children, Dynastic Altruism and the Wealth of Nations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(4), pages 774-791, October.

    More about this item

    Keywords

    life expectancy; value of statistical life; mortality risk aversion; Epstein-Zin-Weil pref- erences; Welfare; AIDS.;

    JEL classification:

    • I - Health, Education, and Welfare
    • J - Labor and Demographic Economics

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