The Value of Life: A New Labor Theory-Based Model

Mahmoud Arayssi 1 , Sarkis Joseph Khoury 2  and Rania Uwaydah Mardini 3
  • 1 Dhofar University, Oman and American University of Beirut, Lebanon
  • 2 University of California, Riverside
  • 3 American University of Beirut, Lebanon

This paper develops a labor-based model where a worker chooses between not only work and leisure, as the traditional labor models have argued, but rather between labor, leisure and the purchase of insurance. The model allows the insurance buyer to determine the amount of insurance he is willing to work for and purchase while maximizing utility and derives the shadow price of risk, thus the value of life. The model is applied to quadratic, logarithmic, and exponential utility functions. Results can help insurance companies determine the cost of insurance associated with a specific job and related risk.

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The Journal of Business Valuation and Economic Loss Analysis (JBVELA) is a refereed academic journal with the mission to improve the practice of business valuation, economic loss analysis, and risk management by helping to inform academics, practitioners and attorneys about theoretical and practical developments in these fields.