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ROY MODEL SORTING AND NONRANDOM SELECTION IN THE VALUATION OF A STATISTICAL LIFE *
Author(s) -
DeLeire Thomas,
Khan Shakeeb,
Timmins Christopher
Publication year - 2013
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/j.1468-2354.2012.00733.x
Subject(s) - wage , econometrics , valuation (finance) , sorting , economics , estimation , current population survey , selection (genetic algorithm) , population , statistics , computer science , mathematics , labour economics , demography , artificial intelligence , sociology , management , finance , programming language
Wage‐hedonics is used to recover the value of a statistical life (VSL) by exploiting the fact that workers choosing riskier occupations are compensated with a higher wage. Roy ( Oxford Economic Papers 3 (1951), 135–46) suggests that observed wage distributions will be distorted if individuals choose jobs according to idiosyncratic returns. We describe how this type of sorting biases wage‐hedonic VSL estimates and implement two new estimation strategies that correct that bias. Using data from the Current Population Surveys, we recover VSL estimates that are three to four times larger than those based on the traditional techniques, statistically significant, and robust to a wide array of specifications.