17 Pages Posted: 21 Aug 2003
Date Written: July 2003
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 CRAA'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.
JEL Classification: D80, G11, G12, I10, J17
Suggested Citation: Suggested Citation
Kaplow, Louis, The Value of a Statistical Life and the Coefficient of Relative Risk Aversion (July 2003). Harvard Law and Economics Discussion Paper No. 426. Available at SSRN: https://ssrn.com/abstract=437541 or http://dx.doi.org/10.2139/ssrn.437541