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econ 4-16-2007

# econ 4-16-2007 - How to measure the statistical values of a...

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How to measure the statistical values of a life suppose there are 2 jobs that differ only in ly mobile between jobs. Then , in equilibrium, it must be the case that: W1+A1=W2+A2 Where wi= wage component of compensation Ai= negative monetary value associated with the likelihood of death on the job Suppost job 1 is perfectly safe, so A1=0 then: W1=W2+A2 Let W1= \$50,000/ year Suppose, too, that the likelihood of dying in job 2 during any given year is 1 in 10,000 Denote this rish using small Greek rho, p=1/10,000 And finally, suppose we know that A2 takes the form A2=-p x c Where C is the compensation required per unit risk, p. W1=w2+A2 =W2-pC, So, W2=W1+pC W2=\$50,000 + 1/10,000C C is higher, the more people value their lives. And the more people value their lives, the higer the wage in the dangerous job will be in equilibrium. Suppose, that, in equilibrium, W2= \$50,200 W1=\$50,000 Clearly, A2= \$200/yr This means that 10,000 people would be willing to accept 1 death per year amongst them (remember, p=1/10,000) in return for a total payment of:

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econ 4-16-2007 - How to measure the statistical values of a...

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