NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

How Unobservable Productivity Biases the Value of a Statistical Life

Thomas J. Kniesner, W. Kip Viscusi, Christopher Woock, James P. Ziliak

NBER Working Paper No. 11659
Issued in October 2005
NBER Program(s):   HE   LE   PE

A prominent theoretical controversy in the compensating differentials literature concerns unobservable individual productivity. Competing models yield opposite predictions depending on whether the unobservable productivity is safety-related skill or productivity generally. Using five panel waves and several new measures of worker fatality risks, first-difference estimates imply that omitting individual heterogeneity leads to overestimates of the value of statistical life, consistent with the latent safety-related skill interpretation. Risk measures with less measurement error raise the value of statistical life, the net effect being that estimates from the static model range from $5.3 million to $6.7 million, with dynamic model estimates somewhat higher.

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Document Object Identifier (DOI): 10.3386/w11659

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