Journal Article

Willingness to Pay, Death, Wealth, and Damages

Ariel Porat and Avraham Tabbach

in American Law and Economics Review

Published on behalf of The American Law and Economics Association

Volume 13, issue 1, pages 45-102
Published in print January 2011 | ISSN: 1465-7252
Published online April 2011 | e-ISSN: 1465-7260 | DOI: https://dx.doi.org/10.1093/aler/ahq028
Willingness to Pay, Death, Wealth, and Damages

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  • Information, Knowledge, and Uncertainy
  • Welfare Economics
  • Economics of Health
  • Law and Economics
  • Tort Law

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When people face risk of death, they overinvest in risk reduction: first, they discount their risk-reduction costs by the probability of death; second, they consider the consumption of their wealth as a benefit from risk reduction. From a social perspective, people's wealth remains after their death. Therefore, discounting costs by the probability of death and taking into account the benefit of wealth consumption are socially inefficient. Moreover, even for the individual under risk of death, the investment in risk reduction is excessive. We discuss market mechanisms that could correct the inefficiencies; we argue that “willingness to pay” as a criterion for valuing life should radically change; and we show how the results of the economic analysis of tort law should be modified.

Keywords: D60; D80; I10; K13; K32

Journal Article.  21676 words.  Illustrated.

Subjects: Information, Knowledge, and Uncertainy ; Welfare Economics ; Economics of Health ; Law and Economics ; Tort Law

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