Working Paper: NBER ID: w10759
Authors: Isaac Ehrlich; Yong Yin
Abstract: Little attempt has been made so far to quantify the extent to which individual willingness to spend on life protection may account for the observed trends and diversities in agespecific life expectancies across individuals and over time. We address these issues via calibrated simulations of a dynamic, life-cycle model of life protection in which life's end is a stochastic event, age-specific mortality risks are endogenous variables, and spending on life protection is set jointly with related insurance options: life insurance as well as annuities. A unique feature of our model is that it links age-specific mortality risks and implicit private values-of-life-saving (VLS) as "dual variables", and estimates them jointly. It also offers new insights about the concept and measurement of VLS. Life protection is estimated to have a non-negligible impact on age-specific life expectancies. It can account for significant portions of observed inequalities in life expectancies across population groups and over time, as well as for a wide range of empirical estimates of VLS produced via the conventional "willingness to pay" approach.
Keywords: No keywords provided
JEL Codes: C6; D8; I1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| life protection spending (H56) | age-specific life expectancies (J19) |
| life protection spending (H56) | age-specific mortality risks (J11) |
| age-specific mortality risks (J11) | age-specific life expectancies (J19) |
| life protection spending (H56) | value of life saving (VLS) (J17) |
| age-specific life expectancies (J19) | value of life saving (VLS) (J17) |