Question

Problem 3: VSL

a) Describe VSL (i.e., “Value of a Statistical Life”) in terms that a non-economist can understand, taking care to “de-stigmatize” this economic concept (i.e., explain why it should not be considered as controversial as it is often portrayed).

b) Lavetti (2012) studies the wage-risk tradeoff for one of the riskiest professions in the United States: crab fishing in Alaska. The riskiness of crab fishing is driven mainly by the season and weather conditions. Lavetti collects data on the weather conditions of specific fishing trips, and the wages paid to the crew. He then runs a regression of the wage on the expected fatality rate for each trip and finds that an increase in one fatality per 1000 full time workers per year increases the mean hourly wage by $2.10. Calculate the VSL implied by this estimate, assuming that the number of hours a full-time worker works in a year is 2000.

c) Does this number seem high or low to you? Briefly discuss why this might be the case.

Answer 1