St-Amour, Pascal (2022) “Valuing Life over the Life Cycle”, HEC Lausanne, University of Lausanne (paper)
The twin arguments of (i) protecting society’s most vulnerable members (e.g. agents with pre-existing medical conditions, elders) from life-threatening complications and (ii) avoiding delicate medical triage decisions were often used to warrant the substantial reallocation of economic and health care resources during the COVID-19 pandemic. These justifications raise the non-trivial arbitrage between the value of lives saved by intervention vs (i) the opportunity cost of engaged resources and vs (ii) other present or future lives affected by prioritizing a single illness. This paper solves in closed- form a flexible life cycle (LC) model of consumption, leisure and health choices to characterize the shadow value of life along the (i) person-specific (age, health, labour income, wealth, preferences) and (ii) mortality risk-specific (beneficial vs detrimental, temporary vs permanent changes) dimensions. The model is calibrated to reproduce observed household LC dynamics and yields plausible out-of-sample life values with a quality-adjusted life year (QALY) estimates between 95 and 115K$ and a Value of Statistical Life (VSL) close to 6.0M$. It identifies symmetric willingness to pay (WTP) and to accept (WTA) compensation for one-shot beneficial vs detrimental changes in longevity. Permanent changes yield asymmetric responses with larger willingness in the gains relative to loss domain and larger selling (WTA) relative to buying (WTP) prices for longevity. Ageing lowers both the value of and responsiveness to changes in longevity via falling resources and health and marginal continuation utility of living.
Hugonnier, Julien, Florian Pelgrin and Pascal St-Amour (2019), “Self-Inflicted Unemployment Scarring, and Stigma”, HEC Lausanne, University of Lausanne, (paper).
Long-term scars of unemployment include higher ex-post displacement and income losses, as well as lower re-employment that increase in occurrence and du- ration of previous unemployment spells. Human capital explanations assume that capital accumulation is valued by the market, but is impaired by non-employment. We retain the former, yet relax the latter by considering continuous investment decisions made by workers across employment statuses, with positive effects on wages and the likelihood and duration of unemployment spells. 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 circular 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 perform 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. We also show that status-dependent accumulation technology and capital specificity complement, but are not required for scarring and stigma.