If construction workers are willing to accept a 1/2000 annual risk of death if t

Question

If construction workers are willing to accept a 1/2000 annual risk of death if their income increases by $3000 per year, what is the collective willingness to be compensated to accept the loss of one life?

b. There are 20,000 people in a population. The government is considering a project which will cost $1,000,000 annually to add additional guard rails to the main road through town. The government believes this project will result in one fewer fatality in the population every 5 years. (Assume there are no other benefits or costs of the guard-rails.) When asked about how much they would be willing to pay to avoid this reduction in risk annually 12,000 of the people stated $25 and the remainder stated $10. (You can ignore concerns of discounting in this question.) Using this information answer the following questions;

i. How many lives does this project save annually? ii. From the perspective of any individual in this population, what is

the reduction in the probability of their death in any year from this policy? (Assume everyone in the population uses the road equally. In reality, the fact that this is not true may explain their differences in willingness to pay for this reduction in risk.)

iii. What is the implied value of a statistical life in this population? iv. What are two problems (there are many worth mentioning) with

this direct method of asking individuals their willingness to pay for such a risk reduction?

Explanation / Answer

If construction workers are willing to accept a 1/2000 annual risk of death if their income increases by $3000 per year, what is the collective willingness to be compensated to accept the loss of one life? A 1/2000 annual risk of death translates into 1 death per 2000 workers. Based on this, the collective willingness to be compensated is: 2000*$3000 = $6 million

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