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Explaining Diversities in Age-Specific Life Expectancies and Values of Life Saving: A Numerical Analysis

  • Isaac Ehrlich
  • Yong Yin

Little attempt has been made so far to quantify the extent to which individual willingness to spend on life protection may account for the observed trends and diversities in agespecific life expectancies across individuals and over time. We address these issues via calibrated simulations of a dynamic, life-cycle model of life protection in which life's end is a stochastic event, age-specific mortality risks are endogenous variables, and spending on life protection is set jointly with related insurance options: life insurance as well as annuities. A unique feature of our model is that it links age-specific mortality risks and implicit private values-of-life-saving (VLS) as "dual variables", and estimates them jointly. It also offers new insights about the concept and measurement of VLS. Life protection is estimated to have a non-negligible impact on age-specific life expectancies. It can account for significant portions of observed inequalities in life expectancies across population groups and over time, as well as for a wide range of empirical estimates of VLS produced via the conventional "willingness to pay" approach.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10759.

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Date of creation: Sep 2004
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Publication status: published as Ehrlich, Isaac and Yong Yin. "Explaining Diversities In Age-Specific Life Expectancies And Values Of Life Saving: A Numerical Analysis," Journal of Risk and Uncertainty, 2005, v31(2,Sep), 129-162.
Handle: RePEc:nbr:nberwo:10759
Note: HE
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