Heterogeneity in the Value of Life

Abstract

We develop a numerical life-cycle model - with choice over consumption and leisure, stochastic mortality and labor income processes, and calibrated to U.S. data - to characterize willingness to pay (WTP) for mortality risk reduction. Our theoretical framework can explain many empirical findings in this literature, including an inverted-U life-cycle WTP and an order of magnitude difference in prime-aged adults WTP. By endogenizing leisure and employing multiple income measures, we reconcile the literature's large variation in estimated income elasticities. By accounting for gender-and race-specific stochastic mortality and income processes,we explain the literature's black-white and female-male differences.