Environment/Resource Economics Seminar: Nicolai Kuminoff

Nicolai Kuminoff from ASU will be visiting us next Tuesday, December 4. Nicolai works on topics in both public and environmental economics. Tuesday at 3:30pm, he’ll present “The Value of a Statistical Life: Evidence from Seniors’ Medical Expenditures” in Iona 533.

Abstract:

The Value of a Statistical Life: Evidence from Seniors’ Medical Expenditures

By Jonathan D. Ketcham, Nicolai V. Kuminoff and Nirman Saha

People age 65 and above are the main beneficiaries of policies targeting health care and environmental quality in the United States. Determining the efficiency of these policies requires evaluating how much they improve health and how valuable those health improvements are. We address these challenges by developing a novel revealed preference framework for estimating the value of reducing mortality risks among the US Medicare population. We construct a life cycle model in which retirees choose how much to invest in health care, given uncertainty about their future health and survival. Their choices reveal their willingness to pay for increases in life expectancy, which can be used to calculate the value of statistical life (VSL). We estimate the model using Medicare claims linked to survey data on the beneficiaries’ self-assessed health and lifestyle choices. We find that increasing their annual medical expenditures by $1,000 increases 1-year life expectancy by 0.4 percentage points, implying an average VSL of $350,000. These averages embed substantial heterogeneity, with the VSL declining in age and illness. For example, among the subgroup of 66-year old Medicare beneficiaries our VSL estimates range from $1.2 million for someone with no chronic illnesses to $0.5 million for someone with average health to $0.2 million for someone suffering from a severe illness such as dementia, kidney disease, or lung cancer. Using our estimates to revisit the value of mortality reductions attributed to the U.S. Clean Air Act yields benefit measures 70% lower than reported by the U.S. Environmental Protection Agency.