Advertisement

Journal of Risk and Uncertainty

, Volume 23, Issue 3, pp 261–279 | Cite as

Background Risks and the Value of a Statistical Life

  • Louis R. Eeckhoudt
  • James K. Hammitt
Article

Abstract

We examine the effects of background mortality and financial risks on an individual's willingness to pay to reduce his mortality risk (the value of statistical life or VSL). Under reasonable assumptions about risk aversion and prudence with respect to wealth in the event of survival and with respect to bequests in the event of death, background mortality and financial risks decrease VSL. The effects of large mortality or financial risks on VSL can be substantial, but the effects of small background risks are negligible. These results suggest that the commonplace failure to account for background risk in evaluating VSL is unlikely to produce substantial bias in most applications.

value of statistical life mortality risk financial risk risk aversion prudence 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Aumann, Robert J. and Mordecai Kurz. (1977). “Power and Taxes,” Econometrica 45, 1137–1161.Google Scholar
  2. Barksy, Robert B., F. Thomas Juster, Miles S. Kimball, and Matthew D. Shapiro. (1997). “Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study,” Quarterly Journal of Economics 112, 537–580.Google Scholar
  3. Chateauneuf, Alain and Michèle Cohen. (1994). “Risk Seeking with Diminishing Marginal Utility in a Non-Expected Utility Model,” Journal of Risk and Uncertainty 9, 77–91.Google Scholar
  4. Doherty, Neil A. and Harris Schlesinger. (1983). “Optimal Insurance in Incomplete Markets,” Journal of Political Economy 91, 1045–1054.Google Scholar
  5. Dow, William H., Tomas J. Philipson, and Xavier Sala-I-Martin. (1999). “Longevity Complementarities Under Competing Risks,” American Economic Review 89, 1358–1371.Google Scholar
  6. Drèze, Jacques. (1962). “L'Utilité Sociale d'une Vie Humaine,” Revue Française de Recherche Opérationnelle 6, 93–118.Google Scholar
  7. Eeckhoudt, Louis and Miles Kimball. (1992). “Background Risk, Prudence, and the Demand for Insurance.” In Georges Dionne (ed.), Contributions to Insurance Economics. pp. 239–254. Norwell, MA: Kluwer Academic Publishers.Google Scholar
  8. Evans, William N. and W. Kip Viscusi. (1991). “Estimation of State-Dependent Utility Functions Using Survey Data,” Review of Economics and Statistics 73, 94–104.Google Scholar
  9. Fuchs, Victor R. and Richard Zeckhauser. (1987). “Valuing Health—A 'Priceless' Commodity,” American Economic Review 77, 263–268.Google Scholar
  10. Hammitt, James K. (2000). “Valuing Mortality Risk: Theory and Practice,” Environmental Science and Technology 34, 1396–1400.Google Scholar
  11. Heaton, John and Deborah Lucas. (2000). “Portfolio Choice in the Presence of Background Risk,” Economic Journal 110, 1–26.Google Scholar
  12. Jones-Lee, Michael W. (1974). “The Value of Changes in the Probability of Death or Injury,” Journal of Political Economy 82, 835–849.Google Scholar
  13. Kimball, Miles S. (1990). “Precautionary Saving in the Small and in the Large,” Econometrica 58, 53–73.Google Scholar
  14. Krupnick, Alan J. and Maureen L. Cropper. (1992). “The Effect of Information on Health Risk Valuations,” Journal of Risk and Uncertainty 5, 29–48.Google Scholar
  15. Levy, Haim. (1994). “Absolute and Relative Risk Aversion: An Experimental Study,” Journal of Risk and Uncertainty 8, 289–307.Google Scholar
  16. Liu, Jin-Tan and James K. Hammitt. (1999). “Perceived Risk and Value of Workplace Safety in a Developing Country,” Journal of Risk Research 2, 263–275.Google Scholar
  17. Liu, Jin-Tan, James K. Hammitt, and Jin-Long Liu. (1997). “Estimated Hedonic Wage Function and Value of Life in a Developing Country,” Economics Letters 57, 353–358.Google Scholar
  18. O'Conor, Richard M. and Glenn C. Blomquist. (1997). “Measurement of Consumer-Patient Preferences Using a Hybrid Contingent Valuation Method,” Journal of Health Economics 16, 667–683.Google Scholar
  19. Pratt, John W. and Richard J. Zeckhauser. (1996). “Willingness to Pay and the Distribution of Risk and Wealth,” Journal of Political Economy 104, 747–763.Google Scholar
  20. Quiggin, John. (1982). “A Theory of Anticipated Utility,” Journal of Economic Behavior and Organization 3, 323–343.Google Scholar
  21. Schwartz, Joel. (2000). “Harvesting and Long-Term Exposure Effects in the Relationship between Air Pollution and Mortality,” American Journal of Epidemiology 151, 440–448.Google Scholar
  22. Sloan, Frank A., W. Kip Viscusi, Harrell W. Chesson, Christopher J. Conover, and Kathryn Whetten-Goldstein. (1998). “Alternative Approaches to Valuing Intangible Health Losses: The Evidence for Multiple Sclerosis,” Journal of Health Economics 17, 475–97.Google Scholar
  23. Tversky, Amos and Daniel Kahneman. (1992). “Advances in Prospect Theory: Cumulative Representation of Uncertainty,” Journal of Risk and Uncertainty 5, 297–323.Google Scholar
  24. Viscusi, W. Kip. (1993). “The Value of Risks to Life and Health,” Journal of Economic Literature 31, 1912–1946.Google Scholar
  25. Viscusi, W. Kip and William N. Evans. (1990). “Utility Functions that Depend on Health Status: Estimates and Economic Implications,” American Economic Review 81, 353–374.Google Scholar
  26. Viscusi, W. Kip, Wesley A. Magat, and Joel Huber. (1987). “An Investigation of the Rationality of Consumer Valutions of Multiple Health Risks,” Rand Journal of Economics 18, 465–479.Google Scholar
  27. Viscusi, W. Kip, Wesley A. Magat, and Joel Huber. (1991). “Pricing Environmental Health Risks: Survey Assessments of Risk-Risk and Risk-Dollar Trade-Offs for Chronic Bronchitis,” Journal of Environmental Economics and Management 21, 32–51.Google Scholar
  28. Wakker, Peter. (1994). “Separating Marginal Utility and Probabilistic Risk Aversion,” Theoryand Decision 36, 1–44.Google Scholar
  29. Weinstein, Milton C., Donald S. Shepard, and Joseph S. Pliskin. (1980). “The Economic Value of Changing Mortality Probabilities,” QuarterlyJ ournal of Economics 94, 373–396.Google Scholar

Copyright information

© Kluwer Academic Publishers 2001

Authors and Affiliations

  • Louis R. Eeckhoudt
    • 1
  • James K. Hammitt
    • 2
  1. 1.Catholic Faculties of Mons (Belgium) and Lille (France)MonsBelgium
  2. 2.Center for Risk AnalysisHarvard School of Public HealthBostonUSA

Personalised recommendations