Suppose that the equilibrium wage in industry A is $41,000. Industry B is riskier with workers having a 8% greater chance of dying on the job; the wage in industry B is $70,000. What is the implied valuation of a life year?

Suppose that the equilibrium wage in industry A is $41,000. Industry B is riskier with workers having a 8% greater chance of dying on the job; the wage in industry B is $70,000. What is the implied valuation of a life year?

 

 

Answer:

Calculation of implied valuation of life year = Change in equilibrium wage level / Risk factor.

= (70000 – 41000) / 0.08

= 29000 / 0.08

= $ 362500.

Conclusion:- Implied valuation of a life year = $ 362500.

Asked on February 15, 2018 in economics.
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