1.Suppose you are interested in assessing the value of a statistical life for individuals. You ?nd a dataset on risk and wages. You consider running the following OLS regression.
wagesi = ? B0 + ? B1 f atal_riski + ui .
Fatal_risk ranges from 0 to 100 in this example.
a.Theoretically, do we expected ? B1 to be positive or negative?
b. Suppose ? B1 = 25, 000 (with a standard error of 5,000). What is the 95 %con?dence interval for ? B1 ?
c. Calculate the VSL by using ? B1 and the implied compensation associated with a changing fatality risk from 0 to 100.
d. Recalculate the VSL using the ends of con?dence interval you calculated in part b. What is con?dence interval for the implied VSL from the above regression model?
e. What is a potential pitful of using ? B1 to calculated the necessary compensation to go from a 0 to 100 percent risk of fatality (hint, how much variation in fatality risk are we likely to observe in the data)?
2. a. Based on Ruhm’s paper on recessions and health, what are the age group where mortality has the strongest percentage response to an increase in the unemployment rate?
b. What are Ruhm’s conclusions about potential mechanisms that could explain the negative relationship between aggregate unemployment and mortality? What do you think another mechanism might be and what data would you use test your hypothesis?