Valuing Life over the Life Cycle

77 Pages Posted: 16 Aug 2022

See all articles by Pascal St-Amour

Pascal St-Amour

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne); Swiss Finance Institute

Multiple version iconThere are 2 versions of this paper

Date Written: August 9, 2022

Abstract

The twin arguments of (i) protecting society's most vulnerable members (e.g. agents with pre-existing medical conditions, elders) from life-threatening complications and (ii) avoiding delicate medical triage decisions were often used to warrant the substantial reallocation of economic and health care resources during the COVID-19 pandemic. These justifications raise the non-trivial arbitrage between the value of lives saved by intervention vs (i) the opportunity cost of engaged resources and vs (ii) other present or future lives affected by prioritizing a single illness. This paper solves in closed- form a flexible life cycle (LC) model of consumption, leisure and health choices to characterize the shadow value of life along the (i) person-specific (age, health, labour income, wealth, preferences) and (ii) mortality risk-specific (beneficial vs detrimental, temporary vs permanent changes) dimensions. The model is calibrated to reproduce observed household LC dynamics and yields plausible out-of-sample life values with a quality-adjusted life year (QALY) estimates between 95 and 115K$ and a Value of Statistical Life (VSL) close to 6.0M$. It identifies symmetric willingness to pay (WTP) and to accept (WTA) compensation for one-shot beneficial vs detrimental changes in longevity. Permanent changes yield asymmetric responses with larger willingness in the gains relative to loss domain and larger selling (WTA) relative to buying (WTP) prices for longevity. Ageing lowers both the value of and responsiveness to changes in longevity via falling resources and health and marginal continuation utility of living.

Keywords: Value of Human Life, Value of Statistical Life, Gunpoint Value, Deterministic Longevity Value, Hicksian Compensating and Equivalent Variations, Willingness to Pay, Willingness to Accept Compensation, Mortality, Longevity, Non-Expected Utility.

JEL Classification: J17, D15, G11

Suggested Citation

St-Amour, Pascal, Valuing Life over the Life Cycle (August 9, 2022). Swiss Finance Institute Research Paper No. 22-62, Available at SSRN: https://ssrn.com/abstract=4190572 or http://dx.doi.org/10.2139/ssrn.4190572

Pascal St-Amour (Contact Author)

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne) ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
110
Abstract Views
544
Rank
385,409
PlumX Metrics