question archive (a) Suppose a hedonic wage study indicates that individuals have a willingness to pay $50 per person for a reduction in the risk of premature death from an environmental hazard of 1/100,000
(a) Suppose a hedonic wage study indicates that individuals have a willingness to pay $50 per person for a reduction in the risk of premature death from an environmental hazard of 1/100,000
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(a) Suppose a hedonic wage study indicates that individuals have a willingness to pay $50 per person for a reduction in the risk of premature death from an environmental hazard of 1/100,000. What is the Value of a Statistical Life?
(b) Suppose we are considering a regulation to control mercury emissions. The regulation would reduce risk of premature death from 6/100,000 to 2/100,000 each war for 4 million people. What is the maximum cost per year that would make the benefits equal or larger than the costs?
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a.)The willing to pay for risk reduction is $50
The sample of people is;100,000 people.
To find the statistical value of life, the following formula can be used.
Statistical value of life = Willingness to pay per person*The sample of people
= 50*100,000
= $5,000,000
b.) The total population is; 4 million.
The regulation reduces the risk to life from 6/1000 to 2/100,000 as per the sample.
Therefore, the total number of lives saved is;
(6/100,000 - 2/100,000)*4,000,000
= (4/100,000)*4,000,000
= 160 people.
To find out the maximum cost per year that would yield benefits equal or greater than the costs, the following method can be used.
Maximum cost = Statistical value of life*Number of lives saved
Therefore;
Maximum cost = 50,000,000*160
= $800 million
