Assuming the Can Opener: Hedonic Wage Estimates and the Value of Life

Abstract

Although intuitively appealing, the use of hedonic wage estimates to determine people's willingness to pay to avoid the risk of fatal hazards is fraught with problems. The theoretical basis for such estimates are flawed in a number of important ways. The underlying behavioral model is wrong, there is imperfect information about job hazards, and labor markets do not look like the perfectly competitive model on which the theory depends for its conclusions. Further, there are many serious problems with the techniques used to estimate hedonic wage equations. This paper describes these problems. Not surprisingly, these problems result in a wide range of results with respect to willingness to pay to avoid fatal hazards. It is argued that this wide range of results is not fully apparent in the literature because of the bias in publication towards positive as opposed to negative findings. The paper concludes that it is unlikely that economics has much to contribute to the public policy debate over the value of a life.