Is There a Dead-Anyway Effect in Willingness to Pay for Risk Reduction?

DIW Discussion Paper No. 252

20 Pages Posted: 13 Dec 2001

See all articles by Markus Grabka

Markus Grabka

German Institute for Economic Research (DIW Berlin)

Friedrich Breyer

University of Konstanz - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

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

Grabka, Markus and Breyer, Friedrich, Is There a Dead-Anyway Effect in Willingness to Pay for Risk Reduction? (May 2001). DIW Discussion Paper No. 252. Available at SSRN: https://ssrn.com/abstract=293664 or http://dx.doi.org/10.2139/ssrn.293664

Markus Grabka (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstrasse 58
SOEP
D-10117 Berlin
Germany
+49-30-89789-339 (Phone)
+49-30-89789-109 (Fax)

Friedrich Breyer

University of Konstanz - Department of Economics ( email )

Fachbereich Wirtschaftswissenschaften Fach D-135
D-78457 Konstanz
Germany
+49 (0)75 31/88-25 68 (Phone)
+49 (0)75 31/88-41 35 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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