Working Paper: NBER ID: w15372
Authors: Mary F. Evans; V. Kerry Smith
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.
Keywords: Income Elasticity of Value of a Statistical Life; Labor Supply; Consumption Commitments; Health Shocks
JEL Codes: J31; Q51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unexpected medical expenditures (H51) | decreased labor supply (J20) |
| consumption commitments (E21) | decreased responsiveness to income shocks (D11) |
| income elasticity of the value of a statistical life (ievsl) (J17) | influenced by coefficient of relative risk aversion (crr) (D11) |
| spousal health shocks (I12) | responsiveness of labor force exit decisions (J29) |
| home mortgage commitments (G21) | responsiveness to income shocks (H31) |