Working Paper: NBER ID: w20206
Authors: Joseph E. Aldy; Seamus J. Smyth
Abstract: We develop a numerical life-cycle model with choice over consumption and leisure, stochastic mortality and labor income processes, and calibrated to U.S. data to characterize willingness to pay (WTP) for mortality risk reduction. Our theoretical framework can explain many empirical findings in this literature, including an inverted-U life-cycle WTP and an order of magnitude difference in prime-aged adults WTP. By endogenizing leisure and employing multiple income measures, we reconcile the literature's large variation in estimated income elasticities. By accounting for gender- and race-specific stochastic mortality and income processes, we explain the literature's black-white and female-male differences.
Keywords: Willingness to Pay; Mortality Risk Reduction; Lifecycle Model; Income Elasticities; Demographic Differences
JEL Codes: D91; J17; Q51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| WTP for mortality risk reduction (J17) | demographic factors (age, income, gender, ethnicity) (J21) |
| income distribution (D31) | dispersion in WTP (D39) |
| permanent component of wages (J31) | elasticity of WTP (D11) |
| realized income (D31) | elasticity of WTP (D11) |
| age (J14) | WTP (F13) |
| white agents (L85) | WTP to reduce mortality risk (J17) |
| men (Y70) | WTP (F13) |
| age 70 (J26) | differences in accumulated wealth (D31) |