econ 4-16-2007

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

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
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:
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/09/2008 for the course MGT 400 taught by Professor Roth during the Spring '08 term at Clemson.

Page1 / 2

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

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online