Tuesday, September 05, 2006

Value of a Statistical Life - age effects

The Value of Statisitcial Life literature is extensive but the fundamental issue of how economists value life is still controversial.

A recent paper by Joe Aldy and Kip Viscusi continue the controversy by looking at age and cohort effects.

The issue here is whether older (and indeed younger) individuals should have lower VSLs. As you can imagine a proposal to use such a measure by the EPA in the US was soon dropped after pressure from the "grey lobby". More discussion can be found in the paper linked below.

In time we hope to add some recent UK figures to the debate.

See the link and abstract below.


Adjusting the Value of a Statistical Life for Age and Cohort Effects

Joseph E. Aldy and W. Kip Viscusi April 2006 RFF Discussion Paper 06-19

To resolve the theoretical ambiguity in the effect of age on the value of statistical life (VSL), this article uses a novel, age-dependent fatal risk measure to estimate age-specific hedonic wage regressions. VSL exhibits an inverted-U shaped relationship with age. In the year 2000 cross-section, workers’ VSL rises from $3.2 million (ages 18–24), to $9.9 million (35–44), and declines to $3.8 million (55–62). Controlling for birth-year cohort effects in a minimum distance estimator yields a peak VSL of $7.8 million at age 46 and flattens the VSL-age relationship. The value of statistical life-year also follows an inverted-U shape with age.

JEL Classification: J17, I12
Keywords: value of statistical life, job risks, hedonic wage regression, VSLY

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