Skip to main content
SpringerLink
Log in

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

  • Published:
Journal of Risk and Uncertainty Aims and scope Submit manuscript

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 (R’s) in excess of one, and often significantly higher. However, it can be shown that high R’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 an R 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.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Arrow, Kenneth J. (1971). Essays in the Theory of Risk-Bearing. Chicago: Markham Publishing Co.

    Google Scholar 

  • Barsky, Robert B., F. Thomas Juster, Miles S. Kimball, and Matthew D. Shapiro. (1997). “Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study,” Quarterly Journal of Economics 112, 537–579.

    Article  Google Scholar 

  • Benartzi, Shlomo and Richard H. Thaler. (1995). “Myopic Loss Aversion and the Equity Premium Puzzle,” Quarterly Journal of Economics 110, 73–92.

    Google Scholar 

  • Bernheim, B. Douglas, Katherine Grace Carman, Jagadeesh Gokhale, and Laurence J. Kotlikoff. (2003). “Are Life Insurance Holdings Related to Financial Vulnerabilities?” Economic Inquiry 41, 531–554.

    Article  Google Scholar 

  • Blake, David. (1996). “Efficiency, Risk Aversion and Portfolio Insurance: An Analysis of Financial Asset Portfolios Held by Investors in the United Kingdom,” Economic Journal 106, 1175–1192.

    Google Scholar 

  • Brav, Alon, George M. Constantinides, and Christopher C. Geczy. (2002). “Asset Pricing with Heterogeneous Consumers and Limited Participation: Empirical Evidence,” Journal of Political Economy 110, 793–824.

    Article  Google Scholar 

  • Campbell, John Y. (1996). “Understanding Risk and Return,” Journal of Political Economy 104, 298–345.

    Article  Google Scholar 

  • Campbell, John Y. (2003). “Consumption-Based Asset Pricing.” In G.M. Constantinides, M. Harris, and R.M. Stulz (eds.), Handbook of the Economics of Finance: Financial Markets and Asset Pricing, Amsterdam: Elsevier, vol. 1B, pp. 803–887.

    Google Scholar 

  • Chetty, Raj. (2003). “A New Method of Estimating Risk Aversion.” NBER Working Paper 9988.

  • Choi, E. Kwan and Carmen F. Menezes. (1992). “Is Relative Risk Aversion Greater than One?” International Review of Economics and Finance 1, 43–54.

    Article  Google Scholar 

  • Constantinides, George M. (1990). “Habit Formation: A Resolution of the Equity Premium Puzzle,” Journal of Political Economy 98, 519–543.

    Article  Google Scholar 

  • Costa, Dora L. and Matthew E. Kahn. (2004). “Changes in the Value of Life, 1940–1980,” Journal of Risk and Uncertainty 29, 159–180.

    Article  Google Scholar 

  • Davies, James B. (1996). “Explaining Intergenerational Transfers.” In P. L. Menchik (ed.), Household and Family Economics, pp. 47–82. Boston: Kluwer Academic Publishers.

    Google Scholar 

  • Epstein, Larry G. and Stanley E. Zin. (1990). “First-Order’ Risk Aversion and the Equity Premium Puzzle,” Journal of Monetary Economics 26, 387–407.

    Article  Google Scholar 

  • Halek, Martin and Joseph G. Eisenhauer. (2001). “Demography of Risk Aversion,” Journal of Risk and Insurance 68, 1–24.

    Google Scholar 

  • Hammitt, James K., Jin-Tan Liu, and Jin-Long Liu. (2000). “Survival is a Luxury Good: The Increasing Value of a Statistical Life.” (Unpublished manuscript.)

  • Kaplow, Louis. (2003a). “The Value of a Statistical Life and the Coefficient of Relative Risk Aversion.” NBER Working Paper 9852.

  • Kaplow, Louis. (2003b). “Concavity of Utility, Concavity of Welfare, and Redistribution of Income.” NBER Working Paper 10005.

  • Kocherlakota, Narayana R. (1996). “The Equity Premium: It’s Still a Puzzle,” Journal of Economic Literature 34, 42–71.

    Google Scholar 

  • Maitel, Shlomo. (1973). “Public Goods and Income Distribution: Some Further Results,” Econometrica 41, 561–568.

    Google Scholar 

  • Mankiw, N. Gregory. (1985). “Consumer Durables and the Real Interest Rate,” Review of Economics and Statistics 67, 353–362.

    Google Scholar 

  • Mankiw, N. Gregory and Stephen P. Zeldes. (1991). “The Consumption of Stockholders and Nonstockholders,” Journal of Financial Economics 29, 97–112.

    Article  Google Scholar 

  • Masson, André, and Pierre Pestieau. (1997). “Bequest Motives and Models of Inheritance: A Survey of the Literature.” In Guido Erreygers and Toon Vandevelde (eds.), Is Inheritance Legitimate? Ethical and Economic Aspects of Wealth Transfers, pp. 54–88. Berlin: Springer-Verlag.

    Google Scholar 

  • McGrattan, Ellen R. and Edward C. Prescott. (2003). “Average Debt and Equity Returns: Puzzling?” American Economic Review Papers and Proceedings 93, 392–397.

    Google Scholar 

  • Mehra, Rajnish and Edward C. Prescott. (1985). “The Equity Premium: A Puzzle,” Journal of Monetary Economics 15, 145–161.

    Article  Google Scholar 

  • Meyer, Donald J. and Jack Meyer. (2004). “Relative Risk Aversion: What Do We Know?” (Unpublished manuscript.)

  • Pålsson, Anne-Marie. (1996). “Does the Degree of Relative Risk Aversion Vary with Household Characteristics?” Journal of Economic Psychology 17, 771–787.

    Article  Google Scholar 

  • Shrikhande, Milind M. (1997). “Non-addictive Habit Formation and the Equity Premium Puzzle,” European Financial Management 3, 293–319.

    Article  Google Scholar 

  • Stark, Oded. (1995). Altruism and Beyond: An Economic Analysis of Transfers and Exchanges within Families and Groups. Cambridge: Cambridge University Press.

    Google Scholar 

  • Viscusi, W. Kip. (1994). “Mortality Effects of Regulatory Costs and Policy Evaluation Criteria,” Rand Journal of Economics 25, 94–109.

    Google Scholar 

  • Viscusi, W. Kip and Joseph E. Aldy. (2003). “The Value of a Statistical Life: A Critical Review of Market Estimates throughout the World,”Journal of Risk and Uncertainty 29, 5–76.

    Article  Google Scholar 

  • Viscusi, W. Kip and William N. Evans. (1990). “Utility Functions that Depend on Health Status: Estimates and Economic Implications,” American Economic Review 80, 353–374.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Harvard Law School, Harvard University and National Bureau of Economic Research, Hauser Hall 322, Cambridge, MA, 02138, USA

    Louis Kaplow

Authors
  1. Louis Kaplow
    View author publications

    You can also search for this author in PubMed Google Scholar

Additional information

JEL Classification: D80, G11, G12, I10, J17

Rights and permissions

Reprints and permissions

About this article

Cite this article

Kaplow, L. The Value of a Statistical Life and the Coefficient of Relative Risk Aversion. J Risk Uncertainty 31, 23–34 (2005). https://doi.org/10.1007/s11166-005-2928-1

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11166-005-2928-1

Keywords

Search

Navigation