IDEAS home Printed from https://ideas.repec.org/p/mos/moswps/2008-12.html
   My bibliography  Save this paper

Finite Life Expectancy And The Age-Dependent Value Of A Statistical Life

Author

Listed:
  • Guang-Zhen Sun
  • Yew-Kwang Ng

Abstract

In this short paper, we investigate the behavior of the age-dependent value of a statistical life (VSL) within a lifecycle framework with a finite maximal possible lifespan. Some existing results, obtained under the unrealistic assumption of an infinite life expectancy, are reversed. In particular, we show that when the market interest rate is equal to (or less than) the sum of age-specific mortality rate and the discounting rate in time preference at any age over the remaining lifetime, then VSL declines. We also show that an inverted-U shape of VSL profile over the life cycle emerges under realistically plausible circumstances. An innovation is that we characterize the changes in optimal consumption and instantaneous utility with age, showing that such changes are proportionate to the difference between the sum of age-specific mortality rate and the discounting rate in time preference and the market interest rate, which may prove to be useful in addressing other issues related to VSL.

Suggested Citation

  • Guang-Zhen Sun & Yew-Kwang Ng, 2008. "Finite Life Expectancy And The Age-Dependent Value Of A Statistical Life," Monash Economics Working Papers 12/08, Monash University, Department of Economics.
    • Handle: RePEc:mos:moswps:2008-12
    as

    Download full text from publisher

    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2008/1208finitelifesunng.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Arthur, W B, 1981. "The Economics of Risks to Life," American Economic Review, American Economic Association, vol. 71(1), pages 54-64, March.
    2. Isaac Ehrlich & Yong Yin, 2005. "Explaining Diversities in Age-Specific Life Expectancies and Values of Life Saving: A Numerical Analysis," Journal of Risk and Uncertainty, Springer, vol. 31(2), pages 129-162, September.
    3. Rosen, Sherwin, 1988. "The Value of Changes in Life Expectancy," Journal of Risk and Uncertainty, Springer, vol. 1(3), pages 285-304, September.
    4. Yew-Kwang Ng, 1992. "The older the more valuable: Divergence between utility and dollar values of life as one ages," Journal of Economics, Springer, vol. 55(1), pages 1-16, February.
    5. Linnerooth, Joanne, 1979. "The Value of Human Life: A Review of the Models," Economic Inquiry, Western Economic Association International, vol. 17(1), pages 52-74, January.
    6. Kniesner Thomas J & Viscusi W. Kip & Ziliak James P, 2006. "Life-Cycle Consumption and the Age-Adjusted Value of Life," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-36.
    7. Johansson, Per-Olov, 2002. "On the Definition and Age-Dependency of the Value of a Statistical Life," Journal of Risk and Uncertainty, Springer, vol. 25(3), pages 251-263, November.
    8. Donald S. Shepard & Richard J. Zeckhauser, 1984. "Survival versus Consumption," Management Science, INFORMS, vol. 30(4), pages 423-439, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Antoine Bommier & Bertrand Villeneuve, 2012. "Risk Aversion and the Value of Risk to Life," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 79(1), pages 77-104, March.
    2. Kip Viscusi, W. & Aldy, Joseph E., 2007. "Labor market estimates of the senior discount for the value of statistical life," Journal of Environmental Economics and Management, Elsevier, vol. 53(3), pages 377-392, May.
    3. Daniel Bauer & Darius Lakdawalla & Julian Reif, 2018. "Mortality Risk, Insurance, and the Value of Life," NBER Working Papers 25055, National Bureau of Economic Research, Inc.
    4. repec:dau:papers:123456789/4812 is not listed on IDEAS
    5. Joseph E. Aldy & W. Kip Viscusi, 2008. "Adjusting the Value of a Statistical Life for Age and Cohort Effects," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 573-581, August.
    6. Kniesner Thomas J & Viscusi W. Kip & Ziliak James P, 2006. "Life-Cycle Consumption and the Age-Adjusted Value of Life," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-36, January.
    7. Bleichrodt, Han & Eeckhoudt, Louis, 2006. "Survival risks, intertemporal consumption, and insurance: The case of distorted probabilities," Insurance: Mathematics and Economics, Elsevier, vol. 38(2), pages 335-346, April.
    8. Robert E. Hall & Charles I. Jones, 2007. "The Value of Life and the Rise in Health Spending," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(1), pages 39-72.
    9. 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.
    10. Evans, Mary F. & Smith, V. Kerry, 2006. "Do we really understand the age-VSL relationship?," Resource and Energy Economics, Elsevier, vol. 28(3), pages 242-261, August.
    11. Joseph E. Aldy & W. Kip Viscusi, 2004. "Age Variations in Workers' Value of Statistical Life," NBER Working Papers 10199, National Bureau of Economic Research, Inc.
    12. Andersson, Henrik, 2006. "Willingness to Pay for Road Safety and Estimates of the Risk of Death: Evidence from a Swedish Contingent Valuation Study," Working Papers 2006:5, Swedish National Road & Transport Research Institute (VTI).
    13. Rheinberger, Christoph M. & Hammitt, James K., 2014. "The welfare value of FDA's mercury-in-fish advisory: A dynamic reanalysis," Journal of Health Economics, Elsevier, vol. 37(C), pages 113-122.
    14. James Hammitt & Jin-Tan Liu, 2004. "Effects of Disease Type and Latency on the Value of Mortality Risk," Journal of Risk and Uncertainty, Springer, vol. 28(1), pages 73-95, January.
    15. Henrik Andersson & James Hammitt & Gunnar Lindberg & Kristian Sundström, 2013. "Willingness to Pay and Sensitivity to Time Framing: A Theoretical Analysis and an Application on Car Safety," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 56(3), pages 437-456, November.
    16. Herrera-Araujo, Daniel & Rochaix, Lise, 2020. "Does the Value per Statistical Life vary with age or baseline health? Evidence from a compensating wage study in France," Journal of Environmental Economics and Management, Elsevier, vol. 103(C).
    17. Ruediger Rackwitz, 2004. "Optimal and Acceptable Technical Facilities Involving Risks," Risk Analysis, John Wiley & Sons, vol. 24(3), pages 675-695, June.
    18. Johansson, Per-Olov, 2002. "Defining the value of a statistical life: reply," Journal of Health Economics, Elsevier, vol. 21(1), pages 177-178, January.
    19. Henrik Andersson, 2008. "Willingness to Pay for Car Safety: Evidence from Sweden," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 41(4), pages 579-594, December.
    20. Aldy, Joseph E. & Smyth, Seamus J., 2014. "Heterogeneity in the Value of Life," RFF Working Paper Series dp-14-13, Resources for the Future.
    21. Kuhn, Michael & Wrzaczek, Stefan & Prskawetz, Alexia & Feichtinger, Gustav, 2015. "Optimal choice of health and retirement in a life-cycle model," Journal of Economic Theory, Elsevier, vol. 158(PA), pages 186-212.

    More about this item

    Keywords

    Value of life; life expectancy; interest rates; time preference; mortality.;
    All these keywords.

    JEL classification:

    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mos:moswps:2008-12. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Simon Angus (email available below). General contact details of provider: https://edirc.repec.org/data/dxmonau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.