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How Unobservable Productivity Biases the Value of a Statistical Life

  • Thomas J. Kniesner
  • W. Kip Viscusi
  • Christopher Woock
  • James P. Ziliak

A prominent theoretical controversy in the compensating differentials literature concerns unobservable individual productivity. Competing models yield opposite predictions depending on whether the unobservable productivity is safety-related skill or productivity generally. Using five panel waves and several new measures of worker fatality risks, first-difference estimates imply that omitting individual heterogeneity leads to overestimates of the value of statistical life, consistent with the latent safety-related skill interpretation. Risk measures with less measurement error raise the value of statistical life, the net effect being that estimates from the static model range from $5.3 million to $6.7 million, with dynamic model estimates somewhat higher.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11659.

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Date of creation: Oct 2005
Date of revision:
Handle: RePEc:nbr:nberwo:11659
Note: HE LE PE
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  1. Ivar Ekeland & James J. Heckman & Lars Nesheim, 2004. "Identification and Estimation of Hedonic Models," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages S60-S109, February.
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  11. W. Kip Viscusi, 2004. "The Value of Life: Estimates with Risks by Occupation and Industry," Economic Inquiry, Western Economic Association International, vol. 42(1), pages 29-48, January.
  12. Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, vol. 57(2), pages 411-45, March.
  13. James P. Ziliak & Thomas J. Kniesner, 1998. "The Importance of Sample Attrition in Life Cycle Labor Supply Estimation," Journal of Human Resources, University of Wisconsin Press, vol. 33(2), pages 507-530.
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