436 Problem Set 6 SU19.pdf

# 436 Problem Set 6 SU19.pdf - Economics 436 Spring 2019...

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Economics 436 Spring 2019 Sixth Problem Set Due July 16 th I. Many studies have estimated wage equations for occupations that differ with respect to riskiness. A common form used for the equation is lnW = a + bR + cR 2 , where W is the annual wage, R is the fatal accident rate, and the other job and employee characteristics are omitted for simplicity. A. Derive the expression for VSL. B. One actual example, estimated by Viscusi, yields the result, VSL=13.5 - 21.7R, where the wage equation is evaluated at the mean annual wage, R is the fatal accident rate per thousand employees, and the coefficients are expressed in millions of dollars. 1. Viscusi’s equation implies that the value of a statistical life varies with the level of risk, with workers in riskier jobs having a lower VSL. Explain why this result is consistent with economic theory. 2. The average level of risk in Viscusi’s labor market data was R=0.118. What is the value of statistical life implied by his equation at this level of risk?

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• Fall '08
• Staff
• Million, United States Environmental Protection Agency, Safe Drinking Water Act, VSL

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