IDEAS home Printed from https://ideas.repec.org/p/mos/moswps/2008-12.html
   My bibliography  Save this paper

Finite Life Expectancy And The Age-Dependent Value Of A Statistical Life

Author

Listed:
  • Guang-Zhen Sun
  • Yew-Kwang Ng

Abstract

In this short paper, we investigate the behavior of the age-dependent value of a statistical life (VSL) within a lifecycle framework with a finite maximal possible lifespan. Some existing results, obtained under the unrealistic assumption of an infinite life expectancy, are reversed. In particular, we show that when the market interest rate is equal to (or less than) the sum of age-specific mortality rate and the discounting rate in time preference at any age over the remaining lifetime, then VSL declines. We also show that an inverted-U shape of VSL profile over the life cycle emerges under realistically plausible circumstances. An innovation is that we characterize the changes in optimal consumption and instantaneous utility with age, showing that such changes are proportionate to the difference between the sum of age-specific mortality rate and the discounting rate in time preference and the market interest rate, which may prove to be useful in addressing other issues related to VSL.

Suggested Citation

  • Guang-Zhen Sun & Yew-Kwang Ng, 2008. "Finite Life Expectancy And The Age-Dependent Value Of A Statistical Life," Monash Economics Working Papers 12/08, Monash University, Department of Economics.
  • Handle: RePEc:mos:moswps:2008-12
    as

    Download full text from publisher

    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2008/1208finitelifesunng.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Arthur, W B, 1981. "The Economics of Risks to Life," American Economic Review, American Economic Association, vol. 71(1), pages 54-64, March.
    2. Kniesner Thomas J & Viscusi W. Kip & Ziliak James P, 2006. "Life-Cycle Consumption and the Age-Adjusted Value of Life," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-36, January.
    3. Isaac Ehrlich & Yong Yin, 2005. "Explaining Diversities in Age-Specific Life Expectancies and Values of Life Saving: A Numerical Analysis," Journal of Risk and Uncertainty, Springer, vol. 31(2), pages 129-162, September.
    4. Rosen, Sherwin, 1988. "The Value of Changes in Life Expectancy," Journal of Risk and Uncertainty, Springer, vol. 1(3), pages 285-304, September.
    5. Yew-Kwang Ng, 1992. "The older the more valuable: Divergence between utility and dollar values of life as one ages," Journal of Economics, Springer, vol. 55(1), pages 1-16, February.
    6. Donald S. Shepard & Richard J. Zeckhauser, 1984. "Survival versus Consumption," Management Science, INFORMS, vol. 30(4), pages 423-439, April.
    7. Linnerooth, Joanne, 1979. "The Value of Human Life: A Review of the Models," Economic Inquiry, Western Economic Association International, vol. 17(1), pages 52-74, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Value of life; life expectancy; interest rates; time preference; mortality.;

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mos:moswps:2008-12. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Simon Angus). General contact details of provider: http://edirc.repec.org/data/dxmonau.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.