Measuring How Risk Tradeoffs Adjust with Income

37 Pages Posted: 30 Sep 2009

See all articles by Mary F. Evans

Mary F. Evans

Claremont McKenna College - Robert Day School of Economics and Finance

V. Kerry Smith

Arizona State University (ASU) - Economics Department; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 14, 2009

Abstract

Efforts to reconcile inconsistencies between theory and estimates of the income elasticity of the value of a statistical life (IEVSL) overlook important restrictions implied by a more complete description of the individual choice problem. We develop a more general model of the IEVSL that reconciles some of the observed discrepancies. Our framework describes how exogenous income shocks, such as unexpected medical expenditures, may affect labor supply decisions which in turn influence both the coefficient of relative risk aversion and the IEVSL. The presence of a consumption commitment, such as a home mortgage, also alters this labor supply adjustment. We use data from the Health and Retirement Study to explore the responsiveness of labor force exit decisions to spousal health shocks and the role of a home mortgage as a constraint on this response.

Keywords: value of a statistical life, risk aversion, consumption commitment, labor supply

JEL Classification: Q51, D01, J26

Suggested Citation

Evans, Mary F. and Smith, V. Kerry, Measuring How Risk Tradeoffs Adjust with Income (September 14, 2009). Claremont McKenna College Robert Day School of Economics and Finance Research Paper No. 2009-14. Available at SSRN: https://ssrn.com/abstract=1479845 or http://dx.doi.org/10.2139/ssrn.1479845

Mary F. Evans (Contact Author)

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States
909.607.3423 (Phone)

V. Kerry Smith

Arizona State University (ASU) - Economics Department ( email )

Tempe, AZ 85287-3806
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
45
Abstract Views
797
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information