Question

Suppose the probability of dying on the job each year in Safe Coal Mine is 1.2%, while the probability of dying on the job each year in Unsafe Coal Mine is 1.3%. Moreover, the average salary is $70,000 at Safe Coal Mine and is $72,000 at Unsafe Coal Mine. Given this information, what is the implied statistical value of a life of a miner?

Answer 1

We know Statistical value of life= (Reduction in Wages÷ Reduction in probability of death)

Given, the average salary is $70000 at Safe Coal Mine and is $72,000 at Unsafe Coal Mine.

Now, MC(marginal cost) of the low risky job

= reduction of salary

= ($72000-$70000)

= $2000

Given, probability of death in safe coal mine is 1.2% and probability of death in unsafe coal mine is 1.3%

Now, reduction of deaths in less risky job

= (0.013-0.012)

= 0.001

So, Statistical value of life= $2000/0.001 = $2000000.