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Valuing risk reductions: Incorporating risk heterogeneity into a revealed preference framework

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Abstract

Our study expands the hedonic wage framework to take advantage of the inherent differences in workplace deaths, both in type and probability of occurrence, and examines revealed preferences over these heterogeneous risks. We use data on all fatal workplace deaths in the US from 1992 to 1997 and develop risk rates that are differentiated by how the fatal injury occurred. Within sample tests of the equality of compensating wage differentials for heterogeneous risks indicate that we can reject aggregation of homicide risks with other sources of workplace fatalities. However, our results are not without qualification and highlight important nuances of the labor market as related to estimating compensating wage differentials for risks that have generally been ignored in the previous literature.

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