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Mortality Risk, Insurance, and the Value of Life

Daniel Bauer, Darius Lakdawalla and Julian Reif

No 25055, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a new framework for valuing health and longevity improvements that departs from conventional but unrealistic assumptions of full annuitization and deterministic health. Our framework can value the prevention of mortality and of illness, and it can quantify the effects of retirement policies on the value of life. We apply the framework to life-cycle data and generate new insights absent from the conventional approach. First, treatment is up to five times more valuable than prevention, even when both extend life equally. This asymmetry helps explain low observed investment in preventive care. Second, severe illness can significantly increase the value of statistical life, helping to reconcile theory with empirical findings that consumers value life-extension more in bleaker health states. Third, retirement annuities boost aggregate demand for life-extension. We calculate that Social Security adds $10.6 trillion (11 percent) to the value of post-1940 longevity gains and would add $127 billion to the value of a one percent decline in future mortality.

JEL-codes: H51 H55 I10 (search for similar items in EconPapers)
Date: 2018-09
New Economics Papers: this item is included in nep-age, nep-hea and nep-ias
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