Question

Value of a Statistical Life (VSL). (a) Describe VSL in terms that a non-economist can understand. (b) Lavetti (2017) 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

Answer:-

(A). Describe VSL in terms that a non-economist can understand

Value of a Statistical life is a measure of individual readiness to pay a small amount to reduce the risk of death. For ancient reasons, VSL is a stabilization of a very small change in risks to one's life. Similar people of extensive numbers will be willing to pay to expel a normal risk to one of them to kill randomly every year. It is not about the measure of the eagerness of a person to pay little added up to avoid neither some definite death nor it a moral expression about the estimation of individual's life. The name and stabilization often refer to the anger or a situation of panic, whereas the idea of measuring one's risk choice and make them apply to other identical risks is non-controversy.

(B). Calculate the VSL implied by this estimate, assuming that the number of hours a full-time worker works in a year is 2000.

Here, the numbers are annualized, then $2.10 is the increase in the average hourly wage over the year, and the fatality increase is as if the average riskiness across all hours worked goes up by 1 in 1000

(C) Does this number seem high or low to you

The obtained number is comparatively low than the value mentioned in the lecture by professor Stavins from government VSL and way lower than the current EPA VSL assumption which quotes the value of $7.4 million.

Comparing to past VSL works, this estimate has higher credits due to various econometric reasons which lie beyond the objective of the topic. Eventually, this estimate concentrates and works for the crab fisherman in Alaska which is apparently a smaller population. This estimate would not act as an index of risk preference if these fishermen go for a high tolerance for risk or even prefer risk.