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

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  • Isaac Ehrlich
  • Yong Yin

Abstract

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.

Suggested Citation

  • Isaac Ehrlich & Yong Yin, 2004. "Explaining Diversities in Age-Specific Life Expectancies and Values of Life Saving: A Numerical Analysis," NBER Working Papers 10759, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:10759
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    References listed on IDEAS

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    Cited by:

    1. Isaac Ehrlich & Yong Yin, 2013. "Equilibrium Health Spending and Population Aging in a Model of Endogenous Growth: Will the GDP Share of Health Spending Keep Rising?," Journal of Human Capital, University of Chicago Press, vol. 7(4), pages 411-447.
    2. Gary S. Becker & Kevin M. Murphy, 2007. "Education and Consumption: The Effects of Education in the Household Compared to the Marketplace," Journal of Human Capital, University of Chicago Press, vol. 1(1), pages 9-35.
    3. 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.
    4. Jason M. Fletcher & David E. Frisvold, 2009. "Higher Education and Health Investments: Does More Schooling Affect Preventive Health Care Use?," Journal of Human Capital, University of Chicago Press, vol. 3(2), pages 144-176.
    5. David R. Mann, 2012. "Why We Fight: Understanding Military Participation over the Life Cycle," Journal of Human Capital, University of Chicago Press, vol. 6(4), pages 279-315.
    6. Robert E. Hall & Charles I. Jones, 2007. "The Value of Life and the Rise in Health Spending," The Quarterly Journal of Economics, Oxford University Press, vol. 122(1), pages 39-72.
    7. Martin Ljunge, 2012. "The Spirit of the Welfare State? Adaptation in the Demand for Social Insurance," Journal of Human Capital, University of Chicago Press, vol. 6(3), pages 187-223.
    8. Julien Hugonnier & Florian Pelgrin & Pascal St-Amour, 2009. "Health and (other) Asset Holdings," Swiss Finance Institute Research Paper Series 09-18, Swiss Finance Institute.
    9. 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.
    10. Isaac Ehrlich, 2009. "The Mystery of Human Capital as Engine of Growth, or Why the US Became the Economic Superpower in the 20th Century," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(56), pages 41-93, October -.
    11. Kip Viscusi, W. & Aldy, Joseph E., 2007. "Labor market estimates of the senior discount for the value of statistical life," Journal of Environmental Economics and Management, Elsevier, vol. 53(3), pages 377-392, May.
    12. Titus J. Galama & Hans van Kippersluis, 2013. "Health Inequalities through the Lens of Health Capital Theory: Issues, Solutions, and Future Directions," Tinbergen Institute Discussion Papers 13-076/V, Tinbergen Institute.
    13. Joseph E. Aldy & W. Kip Viscusi, 2008. "Adjusting the Value of a Statistical Life for Age and Cohort Effects," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 573-581, August.
    14. repec:eee:joecag:v:6:y:2015:i:c:p:5-12 is not listed on IDEAS
    15. Tamara Fioroni, 2010. "Optimal savings and health spending over the life cycle," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 11(4), pages 355-365, August.
    16. Beni­tez-Silva, Hugo & Ni, Huan, 2008. "Health status and health dynamics in an empirical model of expected longevity," Journal of Health Economics, Elsevier, vol. 27(3), pages 564-584, May.
    17. Hammitt James K. & Robinson Lisa A, 2011. "The Income Elasticity of the Value per Statistical Life: Transferring Estimates between High and Low Income Populations," Journal of Benefit-Cost Analysis, De Gruyter, vol. 2(1), pages 1-29, January.
    18. Julien Hugonnier & Florian Pelgrin, 2013. "Health and (Other) Asset Holdings," Review of Economic Studies, Oxford University Press, vol. 80(2), pages 663-710.
    19. Jihong Ding & Minglai Zhu, 2009. "A theoretical investigation of the reformed public health insurance in urban China," Frontiers of Economics in China, Springer;Higher Education Press, vol. 4(1), pages 1-29, March.
    20. Li-Shiun Chen & Ping Wang & Yao Yao, 2017. "Smoking, Health Capital, and Longevity: Evaluation of Personalized Cessation Treatments in a Lifecycle Model with Heterogeneous Agents," NBER Working Papers 23820, National Bureau of Economic Research, Inc.
    21. Nattavudh Powdthavee, 2010. "Does Education Reduce the Risk of Hypertension? Estimating the Biomarker Effect of Compulsory Schooling in England," Journal of Human Capital, University of Chicago Press, vol. 4(2), pages 173-202.
    22. Paul Heaton, 2008. "Childhood Educational Disruption and Later Life Outcomes: Evidence from Prince Edward County," Journal of Human Capital, University of Chicago Press, vol. 2(2), pages 154-187.
    23. repec:dau:papers:123456789/4812 is not listed on IDEAS
    24. Titus Galama, 2011. "A Contribution to Health Capital Theory," Working Papers WR-831, RAND Corporation.

    More about this item

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • I1 - Health, Education, and Welfare - - Health

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