Background Risks and the Value of a Statistical Life

Louis Eeckhoudt and James Hammitt

Journal of Risk and Uncertainty, 2001, vol. 23, issue 3, 79 pages

Abstract: We examine the effects of background mortality and financial risks on an individual's willingness to pay to reduce his mortality risk (the value of statistical life or VSL). Under reasonable assumptions about risk aversion and prudence with respect to wealth in the event of survival and with respect to bequests in the event of death, background mortality and financial risks decrease VSL. The effects of large mortality or financial risks on VSL can be substantial, but the effects of small background risks are negligible. These results suggest that the commonplace failure to account for background risk in evaluating VSL is unlikely to produce substantial bias in most applications. Copyright 2001 by Kluwer Academic Publishers

Date: 2001
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