Does risk aversion increase the value of mortality risk?

Abstract

It is often asserted that individual willingness to pay to reduce mortality risk is greater among individuals who are “more risk-averse.” If risk aversion is defined in the colloquial sense of distaste for mortality risk, the assertion is tautological since a larger value of statistical life (VSL) represents a higher rate of substitution between money and mortality risk. If risk aversion is defined in the technical sense of distaste for mean-preserving increases in the spread of a lottery, the assertion appears to be a non sequitur since mortality risk is a binary lottery between fixed endpoints and VSL does not depend on local aversion to financial risk. We examine the relationship between aversion to financial risk and willingness to pay to reduce mortality risk and find that it is sensitive to what other characteristics of the utility function are held constant as risk aversion is altered. Although aversion to financial risk increases VSL in definable cases, under many plausible assumptions the relationship between risk aversion and VSL is ambiguous.