Risk Heterogeneity and the Value of Reducing Fatal Risks: Further Market-Based Evidence

Ikuho Kochi () and Laura Taylor

Journal of Benefit-Cost Analysis, 2011, vol. 2, issue 3, 1-28

Abstract: The benefits associated with mortality risk reductions are a critical input for the benefit-cost analysis of economically significant federal regulations that affect health and safety. The dominant method of estimating the benefits of reducing mortality risks relies on labor markets to estimate the tradeoffs between workers’ wages and occupational risk. The past literature considers all labor market risks to be equivalent, failing to recognize the inherent heterogeneity in occupational hazards. In this research, heterogeneity in the value of reducing risks is explored within the labor market context. Unique location-specific risk data are developed for over 300 U.S. cities to separately identify the wage premiums for facing two disparate occupational risks: violent assault and motor vehicle accident risks. We find that ignoring the underlying heterogeneity in risks can lead to substantial over/under-statements of the benefits of reducing any one particular risk by up to 350%. As such, caution is urged for benefits transfer exercises that apply estimates of the marginal willingness to pay for reducing labor market accident risks to policies affecting very different risks, such as public safety or environmental risks.

Date: 2011
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