Is There a Dead-Anyway Effect in Willingness to Pay for Risk Reduction?
DIW Discussion Paper No. 252
20 Pages Posted: 13 Dec 2001
Date Written: May 2001
Abstract
In a recent paper, Pratt and Zeckhauser (JPE, 1996) discuss the measure of individuals' willingness to pay (WTP) for the reduction of risks to their lives which should be used for public decisions on risk-reducing projects. They suggest to correct observed WTP for the "dead-anyway" effect, which says that WTP increases with the level of risk to which the individual is exposed - an effect which is due to the imperfection of contingent-claims markets. We first discuss the theoretical foundations of the asserted effect and then propose a new empirical test based on the relationship between wealth, life satisfaction and exposure to risk of dying. Application of the test using two sets of survey data from Germany and Australia.yields no support for the asserted dead-anyway effect.
Keywords: Value of statistical life, mortality risk, contingent-claims markets
JEL Classification: J17, H43
Suggested Citation: Suggested Citation