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The Value of a Statistical Life and the Coefficient of Relative Risk Aversion
Louis Kaplow
Harvard Law School; National Bureau of Economic Research (NBER)
July 2003
NBER Working Paper No. w9852
Abstract:
Individuals' risk preferences are estimated and employed in a variety of settings, notably including choices in financial, labor, and product markets. Recent work, especially in financial economics, provides estimates of individuals' coefficients of relative risk aversion (CRRA's) in excess of one, and often significantly higher. However, it can be shown that high CRRA's imply equally high values for the income elasticity of the value of a statistical life. Yet estimates of this elasticity, derived from labor and product markets, are in the range of 0.5 to 0.6. Furthermore, it turns out that even a CRRA below one is difficult to reconcile with these elasticity estimates. Thus, there appears to be an important (additional) anomaly involving individuals' risk-taking behavior in different market settings.
Number of Pages in PDF File: 17
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Date posted: July 23, 2003
Suggested CitationKaplow, Louis, The Value of a Statistical Life and the Coefficient of Relative Risk Aversion (July 2003). NBER Working Paper No. w9852. Available at SSRN: http://ssrn.com/abstract=425588
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