Measuring How Risk Tradeoffs Adjust With Income

Mary Evans and V. Smith

No 15372, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Efforts to reconcile inconsistencies between theory and estimates of the income elasticity of the value of a statistical life (IEVSL) overlook important restrictions implied by a more complete description of the individual choice problem. We develop a more general model of the IEVSL that reconciles some of the observed discrepancies. Our framework describes how exogenous income shocks, such as unexpected medical expenditures, may affect labor supply decisions which in turn influence both the coefficient of relative risk aversion and the IEVSL. The presence of a consumption commitment, such as a home mortgage, also alters this labor supply adjustment. We use data from the Health and Retirement Study to explore the responsiveness of labor force exit decisions to spousal health shocks and the role of a home mortgage as a constraint on this response.

JEL-codes: J31 Q51 (search for similar items in EconPapers)
Date: 2009-09
New Economics Papers: this item is included in nep-bec
Note: EEE
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Citations: View citations in EconPapers (2)

Published as Mary Evans & V. Smith, 2010. "Measuring how risk tradeoffs adjust with income," Journal of Risk and Uncertainty, Springer, vol. 40(1), pages 33-55, February.

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