Mortality Risk, Insurance, and the Value of Life

61 Pages Posted: 17 Sep 2018

See all articles by Daniel Bauer

Daniel Bauer

University of Alabama

Darius Lakdawalla

University of Southern California

Julian Reif

University of Illinois at Urbana-Champaign

Date Written: September 2018

Abstract

We develop a new framework for valuing health and longevity improvements that departs from conventional but unrealistic assumptions of full annuitization and deterministic health. Our framework can value the prevention of mortality and of illness, and it can quantify the effects of retirement policies on the value of life. We apply the framework to life-cycle data and generate new insights absent from the conventional approach. First, treatment is up to five times more valuable than prevention, even when both extend life equally. This asymmetry helps explain low observed investment in preventive care. Second, severe illness can significantly increase the value of statistical life, helping to reconcile theory with empirical findings that consumers value life-extension more in bleaker health states. Third, retirement annuities boost aggregate demand for life-extension. We calculate that Social Security adds $10.6 trillion (11 percent) to the value of post-1940 longevity gains and would add $127 billion to the value of a one percent decline in future mortality.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Suggested Citation

Bauer, Daniel and Lakdawalla, Darius and Reif, Julian, Mortality Risk, Insurance, and the Value of Life (September 2018). NBER Working Paper No. w25055. Available at SSRN: https://ssrn.com/abstract=3250601

Daniel Bauer (Contact Author)

University of Alabama ( email )

361 Stadium Drive
Tuscaloosa, AL 35487
United States

Darius Lakdawalla

University of Southern California

Julian Reif

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL 61820
United States

HOME PAGE: http://www.julianreif.com

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
4
Abstract Views
143
PlumX Metrics