Hugonnier, Julien, Florian Pelgrin and Pascal St-Amour (2017), “Valuing Life as an Asset, as a Statistic, and at Gunpoint” , Faculty of Business and Economics (HEC), University of Lausanne, (paper).
- Abstract: The Human Capital (HK), and Statistical Life Values (VSL) lack a common theoret- ical background, and differ sharply in their empirical pricing of a human life. This paper makes four contributions to the theory, and measurement of the latter. First, we provide a unified framework to formally define, and relate the Hicksian willingness to pay (WTP) to avoid death risks, the HK, and the VSL. Second, we use this setting to introduce a third life value calculated at Gunpoint (GPV), i.e. the maximal WTP to avoid certain, instantaneous death. Third, we associate a flexible human capital model to the common framework to characterize the WTP and the three life valuations in closed-form. Fourth, we structurally estimate these solutions. Our results confirm that the strong curvature of the WTP explains why the VSL (8.43 M$) is much higher than either the HK (438 K$) or the GPV (452 K$) values.
Hugonnier, Julien, Florian Pelgrin and Pascal St-Amour (2017), “Closing Down the Shop: Optimal Health and Wealth Dynamics near the End of Life”, Faculty of Business and Economics (HEC), University of Lausanne, (paper).
- Abstract: Health declines, and mortality risk increases rapidly near the end of life. Cura- tive care expenses stagnate, while long-term care spending increases, accelerating the fall in wealth. Standard explanations emphasize inevitable health deteriorations associated with aging. We propose a closing down the shop alternative where agents’ decisions affect their health, and the timing of death. Despite strictly preferring to live, agents optimally deplete their health and wealth statuses towards levels associated with high death risk and indifference between life and death. Using HRS data for agents over 65, a structural estimation of the closed-form decisions induced by the model identifies and tests conditions for these strategies to be optimal, and confirm their economic relevance near the end of life.
Hugonnier, Julien, Florian Pelgrin and Pascal St-Amour (2017), “Self-Inflicted Unemployment Scarring, and Stigma” (preliminary), Faculty of Business and Economics (HEC), University of Lausanne, (paper).
- Abstract: Long-term scars of unemployment include higher ex-post displacement, and income losses, as well as lower re-employment for longer unemployment spells (stigma). Human capital explanations assume it increases wages, and re-employment, and decreases displacement risk, but rely on tenure-based and/or employer decided acquisition only. We consider an alternative where investment decisions are made by workers, allowing for displacement and re-employment risks hedging, and assuming that the investment technology is independent of the employment status. We calculate analytically the joint optimal investment by the employed and the unemployed. We identify two dynamically stable steady-state values with a lower one for the unemployed generating cyclical dynamics whereby human capital optimally falls during unemployment spells, and increases again upon re-employment. It follows that scarring and stigma are endogenously generated as a by-product of decisions made by agents, and are therefore self-inflicted. We close the analysis by a counter- factual exercise allowing to gauge and confirm the importance of employment risks hedging in total demand for human capital, and that of moral hazard issues in the design of UIB programs.
Mesquida, Yannis, and Pascal St-Amour (2017), “Joint Lifetime Financial, Work, and Health Decisions: Thrifty and Healthy Enough for the Long Run?”, manuscript, Faculty of Business and Economics (HEC), University of Lausanne, (paper).
- Abstract: US individuals are separately admonished for not being healthy enough, and for insufficient savings in both financial and pension assets. However, characterizing joint health, and assets sufficiency becomes more challenging when exposure to death, and sickness risks can be altered through forward-looking health spending and leisure decisions made by agents. We consider such a framework to reassess joint adequacy in health capital, financial and pension wealth. Our benchmark is flexible enough to admit either healthy-and-thrifty, or live-fast-die-young optimal strategies. Nevertheless, observed choices are found to be inconsistent with rational planning. Individuals in the data are not healthy enough, and consequently face a shorter life horizon than expected. Moreover, full insurance, and age-increasing wages would optimally point to more medical expenditures and less leisure to maintain health than currently observed. As a consequence, observed post-retirement income is too low, and financial wealth is depleted too rapidly, leading to a sharp drop in consumption after 65 that is inconsistent with optimizing behavior. Relaxing assumptions on complete health insurance and pension regimes only partially alleviates these discrepancies.