NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Mortality Risk, Insurance, and the Value of Life

Daniel Bauer, Darius Lakdawalla, Julian Reif

NBER Working Paper No. 25055
Issued in September 2018, Revised in October 2019
NBER Program(s):Economics of Aging, Health Care, Health Economics, Public Economics

We develop a new framework for valuing health and longevity improvements that departs from conventional but unrealistic assumptions of full annuitization and deterministic health. Our framework can value the prevention of mortality and of illness, and it can quantify the effects of retirement policies on the value of life. We apply the framework to life-cycle data and generate new insights absent from the conventional approach. First, treatment is up to five times more valuable than prevention, even when both extend life equally. This asymmetry helps explain low observed investment in preventive care. Second, severe illness can significantly increase the value of statistical life, helping to reconcile theory with empirical findings that consumers value life-extension more in bleaker health states. Third, retirement annuities boost aggregate demand for life-extension. We calculate that Social Security adds $10.6 trillion (11 percent) to the value of post-1940 longevity gains and would add $127 billion to the value of a one percent decline in future mortality.

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Document Object Identifier (DOI): 10.3386/w25055

 
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