SSE/EFI Working Paper Series in Economics and Finance
No 152:
On the Value of Changes in Life Expectancy: Blips versus Parametric Changes
Magnus Johannesson ()
, PerOlov Johansson ()
and KarlGustaf Löfgren
Abstract: Previous studies indicate that the general public would
prefer to reallocate medical resources from old people to young ones, and
also has a low WTP for measures that increase the survival probability at
an advanced age. In this paper, we present an analysis of the value of a
‘blip’, i.e. an immediate small reduction, in the hazard rate for a random
sample of Swedes. Since the risk reduction is ageindependent (2 ‘extra
saved lives’ out of 10,000 during the next year), we can examine how the
WTP and the implied value of a statistical life vary with age. We also show
how blip data can be used to obtain a lower bound for the value of a
parametric, i.e. permanent, change in an individual’s hazard rate. This
approach avoids asking respondents to perform the tricky task of
estimating, for example, their entire future survival and income paths, a
task which is necessary in order to estimate the WTP for a change lasting
over their remaining life cycle. The estimated willingness to pay as well
as the implied value of a statistical life are very reasonable, The value
of life exhibits an invertedU shape with respect to age, peaking at the
age of 40, and falls in the $3 to $7 million interval where most reasonable
estimates are clustered according to Viscusi’s (1992) survey.
Keywords: Willingness to pay; insurance; life expectancy; statistical life; ageing; (follow links to similar papers)
JELCodes: I10; I31; D10; H43; (follow links to similar papers)
23 pages, January 1997
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 This paper is published as:

Johannesson, Magnus, PerOlov Johansson and KarlGustaf Löfgren, (1997), 'On the Value of Changes in Life Expectancy: Blips versus Parametric Changes', Journal of Risk and Uncertainty, Vol. 15, December, No. 3, pages 221240
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