Implicit Value of a Person's Life Calculation
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?
What is the implicit value of a person's life?
$1,250,000
Explanation:
The implicit value of a person's life can be found by using the elasticity approach.
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