A Comment on Two Recent Contributions on the Value of Life
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2016-12
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Working Paper
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Abstract
Two recent articles (Córdoba and Ripoll, 2017; Hugonnier, Pelgrin, and St-Amour, 2013) have proposed a recursive formulation of utility functions combining a positive value of life, preference homotheticity, and a constant elasticity of substitution. However, when the elasticity of substitution is below one and mortality rates take plausible values, the recursive formulation admits only a unique, constant solution where utility equals zero everywhere. Non-constant solutions may only exist if mortality rates are assumed to remain low at all ages, that is, in a world of perpetually young agents. Such solutions are therefore unsuitable for studying the value of life in realistic settings. In addition, these non-constant solutions exhibit the questionable property that consumption at a given age and survival at that same age are substitutes instead of complements. We conclude this clarifying paper by reviewing various recursive specifications that can be used to study the value of life without facing such problems.
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2867570
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Social Science Research Network
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Subject
Value of life; Recursive utility; Life-cycle models
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03877 - Bommier, Antoine / Bommier, Antoine