The Value of a Statistical Life and the Coefficient of Relative Risk Aversion

17 Pages Posted: 23 Jul 2003  

Louis Kaplow

Harvard Law School; National Bureau of Economic Research (NBER)

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Date Written: July 2003

Abstract

Individuals' risk preferences are estimated and employed in a variety of settings, notably including choices in financial, labor, and product markets. Recent work, especially in financial economics, provides estimates of individuals' coefficients of relative risk aversion (CRRA's) in excess of one, and often significantly higher. However, it can be shown that high CRRA's imply equally high values for the income elasticity of the value of a statistical life. Yet estimates of this elasticity, derived from labor and product markets, are in the range of 0.5 to 0.6. Furthermore, it turns out that even a CRRA below one is difficult to reconcile with these elasticity estimates. Thus, there appears to be an important (additional) anomaly involving individuals' risk-taking behavior in different market settings.

Suggested Citation

Kaplow, Louis, The Value of a Statistical Life and the Coefficient of Relative Risk Aversion (July 2003). NBER Working Paper No. w9852. Available at SSRN: https://ssrn.com/abstract=425588

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