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Valuing life under the shadow of death : on stationary lifetime preferences under uncertainty

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Abstract

This paper develops an axiomatic construction of preferences that allows to compare lotteries involving lives of different lengths. Our axioms which basically formalize two assumptions - individuals are rational and have stationary preferences - leads to a class of utility functions that is much larger than the set of separable additive utility functions. We discuss a number of appealing properties associated with non additive utility functions and explore the implications for life cycle behavior. The results lead to a fundamental shift in how the risk of death may be expected to affect intertemporal choices. In particular, the rate of time discounting is shown to be related to mortality and to the way life is valued. This explains why "impatience" may significantly vary along the life cycle as well as why it may change with time during periods of mortality decline. Reciprocally, information on the value of life can also be derived from the variation of the rate of time discounting.

Suggested Citation

  • Antoine Bommier, 2002. "Valuing life under the shadow of death : on stationary lifetime preferences under uncertainty," Research Unit Working Papers 0301, Laboratoire d'Economie Appliquee, INRA.
  • Handle: RePEc:lea:leawpi:0301
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    File URL: http://www.inra.fr/Internet/Departements/ESR/UR/lea/documents/wp/wp0301.pdf
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    Cited by:

    1. Antoine Bommier & Bertrand Villeneuve, 2012. "Risk Aversion and the Value of Risk to Life," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 79(1), pages 77-104, March.

    More about this item

    Keywords

    Value of life; Intertemporal choice; life cycle models;

    JEL classification:

    • J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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