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Risk Aversion and the Value of Risk to Life

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  • Bommier, Antoine
  • Villeneuve, Bertrand

Abstract

The standard literature on the value of life relies on Yaari’s (1965) model, which includes an implicit assumption of risk neutrality with respect to life duration. To overpass this limitation, we extend the theory to a simple variety of nonadditively separable preferences. The enlargement we propose is relevant for the evaluation of life-saving programs: current practice, we estimate, puts too little weight on mortality risk reduction of the young. Our correction exceeds in magnitude that introduced by the switch from the notion of number of lives saved to the notion of years of life saved.

Suggested Citation

  • Bommier, Antoine & Villeneuve, Bertrand, 2008. "Risk Aversion and the Value of Risk to Life," MPRA Paper 11943, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:11943
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    References listed on IDEAS

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    Cited by:

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    2. Svetlana Pashchenko & Ponpoje Porapakkarm, 2020. "Value of Life and Annuity Demand," Working Papers 2020-042, Human Capital and Economic Opportunity Working Group.
    3. Antoine Bommier, 2010. "Portfolio Choice under Uncertain Lifetime," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(1), pages 57-73, February.
    4. Ryan Edwards, 2013. "The cost of uncertain life span," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(4), pages 1485-1522, October.
    5. James Hammitt, 2013. "Admissible utility functions for health, longevity, and wealth: integrating monetary and life-year measures," Journal of Risk and Uncertainty, Springer, vol. 47(3), pages 311-325, December.
    6. Ciara Whelan & Patrick P. Walsh & Franco Mariuzzo, 2004. "EU merger control in differentiated product industries," Open Access publications 10197/138, School of Economics, University College Dublin.
    7. Ian W R Martin & Robert S Pindyck, 2021. "Welfare Costs of Catastrophes: Lost Consumption and Lost Lives," Economic Journal, Royal Economic Society, vol. 131(634), pages 946-969.
    8. Caliendo, Frank N. & Gorry, Aspen & Slavov, Sita, 2020. "Survival ambiguity and welfare," Journal of Economic Behavior & Organization, Elsevier, vol. 170(C), pages 20-42.
    9. Delprat, G. & Leroux, M.-L. & Michaud, P.-C., 2016. "Evidence on individual preferences for longevity risk," Journal of Pension Economics and Finance, Cambridge University Press, vol. 15(2), pages 160-179, April.
    10. Péter Hudomiet & Robert J. Willis, 2013. "Estimating Second Order Probability Beliefs from Subjective Survival Data," Decision Analysis, INFORMS, vol. 10(2), pages 152-170, June.
    11. Antoine Bommier, 2008. "Rational Impatience ?," Working Papers hal-00441880, HAL.
    12. Dionne, Georges & Lebeau, Martin, 2010. "Le calcul de la valeur statistique d’une vie humaine," L'Actualité Economique, Société Canadienne de Science Economique, vol. 86(4), pages 487-530, décembre.
    13. Huang, Huaxiong & Milevsky, Moshe A. & Salisbury, Thomas S., 2012. "Optimal retirement consumption with a stochastic force of mortality," Insurance: Mathematics and Economics, Elsevier, vol. 51(2), pages 282-291.
    14. Strand, Jon, 2006. "Valuation of environmental improvements in continuous time with mortality and morbidity effects," Resource and Energy Economics, Elsevier, vol. 28(3), pages 229-241, August.
    15. Antoine Bommier, 2005. "Life-Cycle Theory for Human Beings," Working Papers hal-00441890, HAL.
    16. Juan Carlos CóRdoba & Marla Ripoll, 2017. "Risk Aversion and the Value of Life," Review of Economic Studies, Oxford University Press, vol. 84(4), pages 1472-1509.
    17. Scott Pataya & Liang Daan, 2016. "What is the Economics of Wind Hazard Mitigation?," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 11(1), pages 25-29, June.
    18. Antoine Bommier, 2006. "Mortality, Time Preference and Life-Cycle Models," Working Papers hal-00441888, HAL.

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    More about this item

    Keywords

    Value of Statistical Life; Lifecycle Behavior; Cost-benefit Analysis;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • 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
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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