publication . Preprint . 2013

Beyond Expected Utility in the Economics of Health and Longevity

Cordoba, Juan Carlos; Ripoll, Marla;
Open Access
  • Published: 28 Mar 2013
Abstract
We document various limitations of the expected utility model for the study of health and longevity. The model assumes individuals are indifferent between early and late resolution of uncertainty. This assumption gives rise to predictions regarding the economic value of life that are inconsistent with relevant evidence. For example, poor individuals would price life below the present value of foregone income or even negatively. We show that a non-expected utility model disentangling intertemporal substitution from risk aversion can overcome these limitations. We illustrate the quantitative implications of our model for the economic value of life across countries...
Subjects
free text keywords: life expectancy; value of statistical life; mortality risk aversion; Epstein-Zin-Weil pref- erences; Welfare; AIDS., jel:I, jel:J
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