Measuring How Risk Tradeoffs Adjust With Income

TitleMeasuring How Risk Tradeoffs Adjust With Income
Publication TypeReport
Year of Publication2009
AuthorsEvans, MF
Series TitleNBER Working Paper
Document Number15372
InstitutionThe National Bureau of Economic Research
CityCambridge, MA
Call Numbernewpubs20091202_w15372.pdf
KeywordsHealth Conditions and Status, Income, Medicare/Medicaid/Health Insurance

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.

Endnote Keywords

Income Variability/Health Shocks/Medical Expenditures

Endnote ID


Citation Key5749