Question

Billy Bob earns $45,000 and faces a .007 probability of dying in a workplace accident. Jim Bob earns $41,000 and faces a .0038 probability of dying in a workplace accident. The two require the same level of skill and training. From this information, what is the implicit value of a person's life?

Answer 1

Answer: $1,250,000

Explanation:

The implicit value of a person's life can be found by using the elasticity approach.

i.e. On comparing the change/reduction in earnings with the change/reduction in probability of dying in a workplace accident.

Given :

Billy Bob earns $45000 with a 0.007 probability of accident

whereas,

Jim Bob earns $41000 with a 0.0038 probability of accident.

thus, value of life = (45000 - 41000)/ (0.007 - 0.0038) = $1,250,000