Divergence between Utility and Dollar Values of Life as One Ages: Solving the Parish Paradox and Raising Perplexing Policy Issues

Yew-Kwang Ng ()

Discussion Paper Serie A from University of Bonn, Germany

Abstract: While the utility value of life may decrease monotonically with age, the dollar value may increase dramatically until a fairly old age (by tenfold to age 60 for one plausible set of parameters). Crucial for this result is a positive real rate of interest which makes accumulation desirable, leading to a lower marginal utility of money when one gets older, explaining the divergence. The time constraint on consumption, the utility of wealth ownership, and capital market imperfection accentuate this divergence which raises perplexing questions as to which value of life should be used and whether the old should be taxed and the young subsidized.

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