The following equation relates the natural log of wages, W, to risk, R, and a vector of covariates, X: lnW = bo +b1*R + C*X. lnW is the natural log of W. Assume that W = 30,000, b1 = 0.15 and the change in risk being considered is a 1 in 3,000 increase in the probability of death. Note also that dW/W = 0.15. A. What would an individual worker need to be paid to be willing to incur this 1 in 3,000 increased risk of death? B. What is the statistical value of a life, based upon this wage equation?

The following equation relates the natural log of wages, W, to risk, R, and a vector of covariates, X: lnW = bo +b1R + CX. lnW is the natural log of W. Assume that W = 30,000, b1 = 0.15 and the change in risk being considered is a 1 in 3,000 increase in the probability of death. Note also that dW/W = 0.15. A. What would an individual worker need to be paid to be willing to incur this 1 in 3,000 increased risk of death? B. What is the statistical value of a life, based upon this wage equation?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter16: Labor Markets

Section: Chapter Questions

Problem 16.9P

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Sophie is offered a performance based wage that will either be equal to $4,200 or to $3,600, each with a probability of 50%. Sophie says that getting $3,900 for certain would be as good as being offered that random wage. Which, of the following sentences, is true? options: Sophie is risk averse and her risk premium is zero. Sophie is risk neutral and her risk premium is zero. Sophie is risk averse and her risk premium is $300. Sophie is risk neutral and her risk premium is $300.
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