THE QUANTITY‐ADJUSTED VALUE OF LIFE

Abstract

The traditional compensating differential analysis is extended to reflect the effects on wages of the duration of life at risk and of insurance benefits to the surviving spouse and dependents. The implicit discount rate that workers use in making their life‐cycle employment decisions is also estimated. The revealed discount rate ranges from 10 to 12 percent, and the implicit value per year of life is 175,000. There is also evidence of significant wage reductions resulting from higher workers' compensation benefits for fatal and nonfatal injuries, suggesting an important tradeoff between ex ante and ex post compensation for risk.