The Value of Life: A New Labor Theory-Based Model

Mahmoud Arayssi, Khoury Sarkis Joseph and Uwaydah Mardini Rania
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Khoury Sarkis Joseph: University of California, Riverside
Uwaydah Mardini Rania: American University of Beirut, Lebanon

Journal of Business Valuation and Economic Loss Analysis, 2006, vol. 1, issue 1, 15

Abstract: This paper develops a labor-based model where a worker chooses between not only work and leisure, as the traditional labor models have argued, but rather between labor, leisure and the purchase of insurance. The model allows the insurance buyer to determine the amount of insurance he is willing to work for and purchase while maximizing utility and derives the shadow price of risk, thus the value of life. The model is applied to quadratic, logarithmic, and exponential utility functions. Results can help insurance companies determine the cost of insurance associated with a specific job and related risk.

Keywords: value of life; utility maximization; shadow price of risk; labor-leisure-insurance purchase tradeoffs (search for similar items in EconPapers)
Date: 2006
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DOI: 10.2202/1932-9156.1004

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