4. Suppose you are trying to calculate the value of a statistical life. You obse

Question

4. Suppose you are trying to calculate the value of a statistical life. You observe two apartment complexes that are identical except that one is slightly closer to an industrial plant that is releasing toxic pollution that increases the risk of death by 1 in 60,000. In other words, the risk of death at Apartment A (the closer apartment) is higher than the risk of death at Apartment Z by 1/60,000. You observe that rent is $1,000 per month at Apartment A and $1,600 per month at Apartment Z. a. Calculate the value of a statistical life implied by these figures. b. What are the problems with estimating the value of a statistical life using the differences in rent and differences in the probability of death? c. How does your estimate of the value ofa statistical life compare to estimates found by researchers? Use the EconLit database to search for at least two articles estimating the value of a statistical life. List your references, their estimate of the VSL, and very briefly describe how each paper estimated the VSL. (Hint: I have posted

Explanation / Answer

a. Value of statistical life = 1/Probability of increase in death * Value of that increase = 60000 * (1600 - 1000) = $ 3600000

b. Problems with estimating the value of statistical life using difference in rent and difference in probability.

(i) THis value of life is limited to only one variable "Rent of the room". Which is not sufficient.

(ii) There are other variable may also involved with higher price in rent of different rooms.

(iii) One more thing " Probability of death" is not only limited to pollution. Age factor, accident facoter and any other cases are also a factor of death.

c. EconLit Data base URLS

https://www.ebsco.com/products/research-databases/econlit

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