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The Value of a Statistical Life and the Coefficient of Relative Risk Aversion

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  • Louis Kaplow

Abstract

Individuals' risk preferences are estimated and employed in a variety of settings, notably including choices in financial, labor, and product markets. Recent work, especially in financial economics, provides estimates of individuals' coefficients of relative risk aversion (CRRA's) in excess of one, and often significantly higher. However, it can be shown that high CRRA's imply equally high values for the income elasticity of the value of a statistical life. Yet estimates of this elasticity, derived from labor and product markets, are in the range of 0.5 to 0.6. Furthermore, it turns out that even a CRRA below one is difficult to reconcile with these elasticity estimates. Thus, there appears to be an important (additional) anomaly involving individuals' risk-taking behavior in different market settings.

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  • Louis Kaplow, 2003. "The Value of a Statistical Life and the Coefficient of Relative Risk Aversion," NBER Working Papers 9852, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:9852
    Note: EH LS AP PE
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    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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