An Empirical Analysis of the Economic Value of Risk Changes

This paper reports detailed empirical tests of how an individual's valuation of a risk change varies with the level of the baseline risk. The findings reject the conventional hypothesis and indicate that the estimated marginal valuation of a risk change decreased with increases in the level of risk. They also indicate that the direction of the risk change and perceived entitlements to safety affect the reported marginal valuations. The specific application involves a contingent valuation analysis based on the responses of a representative sample of households in suburban Boston to proposed reductions in the risks of exposure to hazardous wastes.