Working Paper: NBER ID: w11659
Authors: Thomas J. Kniesner; W. Kip Viscusi; Christopher Woock; James P. Ziliak
Abstract: A prominent theoretical controversy in the compensating differentials literature concerns unobservable individual productivity. Competing models yield opposite predictions depending on whether the unobservable productivity is safety-related skill or productivity generally. Using five panel waves and several new measures of worker fatality risks, first-difference estimates imply that omitting individual heterogeneity leads to overestimates of the value of statistical life, consistent with the latent safety-related skill interpretation. Risk measures with less measurement error raise the value of statistical life, the net effect being that estimates from the static model range from $5.3 million to $6.7 million, with dynamic model estimates somewhat higher.
Keywords: Value of Statistical Life; Unobservable Productivity; Compensating Differentials
JEL Codes: I10; J17; J28; K00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Omitting individual heterogeneity in productivity (D29) | Overestimates of VSL (J17) |
| Unobservable productivity (O49) | VSL estimates (J17) |
| More accurate risk measures (C58) | Higher VSL estimates (J17) |
| Omitted variable bias from unobservable productivity and safety-related skill (J24) | Discrepancies in VSL estimates (J17) |
| Individual heterogeneity in safety-related skills (J28) | VSL (J17) |