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Journal of Risk and Uncertainty

, Volume 40, Issue 1, pp 33–55 | Cite as

Measuring how risk tradeoffs adjust with income

  • Mary F. Evans
  • V. Kerry Smith
Article

Abstract

Efforts to reconcile inconsistencies between theory and estimates of the income elasticity of the value of a statistical life (IEVSL) overlook important restrictions implied by a more complete description of the individual choice problem. We develop a more general model of the IEVSL that reconciles some of the observed discrepancies. Our framework describes how exogenous income shocks, such as unexpected medical expenditures, may affect labor supply decisions which in turn influence both the coefficient of relative risk aversion and the IEVSL. The presence of a consumption commitment, such as a home mortgage, also alters this labor supply adjustment. We use data from the Health and Retirement Study to explore the responsiveness of labor force exit decisions to spousal health shocks and the role of a home mortgage as a constraint on this response.

JEL Classifications

Q51 D01 J26 

Keywords

Value of a statistical life Risk aversion Consumption commitment Labor supply 

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Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  1. 1.The Robert Day School of Economics and FinanceClaremont McKenna CollegeClaremontUSA
  2. 2.Department of EconomicsArizona State UniversityTempeUSA
  3. 3.Resources for the FutureWashingtonUSA
  4. 4.National Bureau of Economic ResearchCambridgeUSA

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