The Value of a Statistical Life for Risk‐Averse and Risk‐Seeking Individuals

This article estimates the value of a statistical life (VSL) for Chile under the hedonic wage method while accounting for individual risk preferences. Two alternative measures of risk aversion are used. First, risk aversion is directly measured using survey measures of preferences over hypothetical...

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Bibliographic Details
Published in:Risk analysis 2019-11, Vol.39 (11), p.2369-2390
Main Author: Parada‐Contzen, Marcela V.
Format: Article
Language:English
Subjects:
Aversion
Drinking behavior
Economic behavior
Economic models
Elicited risk aversion
Estimation bias
Health status
Labor market
Productivity
Risk
Risk assessment
risk attitudes
Risk aversion
Risk preferences
Smoking
Statistics
Tradeoffs
value of a statistical life
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Summary:This article estimates the value of a statistical life (VSL) for Chile under the hedonic wage method while accounting for individual risk preferences. Two alternative measures of risk aversion are used. First, risk aversion is directly measured using survey measures of preferences over hypothetical gambles, and second, over observed individual behaviors that may proxy for risk preferences, such as smoking status, are used. I reconcile the results with a theoretical model of economic behavior that predicts how the wage‐risk tradeoff changes as risk aversion differs across individuals. The VSL estimates range between 0.61 and 8.68 million dollars. The results using smoking behavior as a proxy for risk attitudes are consistent with previous findings. However, directly measuring risk aversion corrects the wage‐risk tradeoff estimation bias in the opposite direction. The results are robust to other observed measures of risk aversion such as drinking behavior and stock investments. Results suggest that, consistent with the literature that connects smoking behavior with labor market outcomes, smoking status could be capturing poor health productivity effect in addition to purely risk preferences.
ISSN:0272-4332
1539-6924
DOI:10.1111/risa.13329