Valuing Life over the Life Cycle

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

No 22-62, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

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. (search for similar items in EconPapers)
JEL-codes: D15 G11 J17 (search for similar items in EconPapers)
Pages: 77 pages
Date: 2022-08
New Economics Papers: this item is included in nep-dcm, nep-dge, nep-hea and nep-upt
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2262

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