Valuing Life as an Asset, as a Statistic, and at Gunpoint

Rationalizing the stark differences between the Human Capital (HK) and the Statistical Values (VSL) of a human life is complicated by the absence of common foundations. We solve a human capital investment model with longevity risk to characterize the HK. The associated indirect utility yields the willingness to pay (WTP) against mortality; the marginal WTP solves the VSL. Indifference between life and certain death characterizes the limiting WTP and provides a Gunpoint Value (GPV). A structural estimation reveals similar HK (300 K$) and GPV (251 K$) and explains a much larger VSL (4.98 M$) by a strongly concave WTP.

An Advised Indirect-Utility Ranking of Opportunity Sets

There is a substantial strand of literature about ranking the subsets of a set of alternatives, usually referred to as opportunity sets. We investigate a model that is dependent on the preference of a grand set of alternatives. In this framework, the indirect-utility criterion ranks the opportunity sets by the following rule: a subset A is weakly preferred to another subset B if and only if A contains at least one preference maximizing element from A∪B. This criterion leads to the indifference of each subset of alternatives to a singleton; symmetry appears at this stage, as the property holds true for any one of the maximizers in A. Conversely, suppose that a ranking of opportunity sets satisfies the property that each opportunity set is indifferent to a singleton contained within it. Then, we prove that such a ranking must use a generalized form of the indirect-utility criterion, where maximization is applied to a selection of the alternatives. Altogether, these results produce a characterization of the advised indirect-utility criterion for ranking opportunity sets.

Self-Control Preferences and Status-Quo Bias

In a setting of choice with an observable status quo, we model an agent who struggles with temptation by exercising (costly) self-control, and who views the status quo as a commitment opportunity that allows him to avoid the self-control costs incurred when making an active choice. Our model is rational in that the agent always maximizes the same ex-post utility function; hence, when the standard indirect utility property holds, the model reduces to classic rational choice model. However, when we allow for costly self-control, our theory provides a rationale for three well-documented phenomena that cannot be captured by the standard model: the status-quo bias, the compromise effect, and the satisficing choice procedure (when ignoring the information on the status quo). A notable feature of our theory is that while it relaxes the indirect utility property, it still allows for a complete identification of an agent’s preference relation over menus. This is found to be important in many practical situations.

Coupling and Deviating of Altruism-Voluntariness Relationship in Organ Transplantation

Organ transplantation is an issue that concerns two people (donor and recipient) at the same time in terms of the right to life, which is the most basic human right. The direct utility arising from organ transplantation involves the patient to whom the organ is transplanted, and the indirect utility relates to the donor. Today, the decision to obtain an organ from a living donor is based on the idea of doing something good by those who sacrifice themselves for their relatives. The person who donates an organ treats their body as an instrument and uses their willpower on it. If the statement “I will care about the health of others” is accepted as a universal principle, it will be very important to establish a balance between the duty of caring for the health of others and protecting one’s own health. If we want to introduce a new approach to be adopted in the assessment of living donors in society, we must look at the real situation in terms of utility, altruism, and volunteering. This Chapter thus evaluates organ transplantation from living donors in terms of utility, altruism, and volunteering.

Eliciting Risk Preferences and Elasticity of Substitution

Risk aversion and elasticity of intertemporal substitution (EIS) are separated via the celebrated recursive utility building on certainty equivalents of indirect utility. Based on an alternative separation method, we formulate a questionnaire for simultaneous and consistent estimation of risk aversion, subjective discount rate, and EIS. From a representative group of 1,153 respondents, we estimate parameters for these preferences and their variability within the population. Risk aversion and the subjective discount rate are found to be in the orders of 2 and 0, respectively, not diverging far away from results from other studies. Our estimate of EIS in the order of 10 is larger than often reported. Background variables like age and income have little predictive power for the three estimates. Only gender has a significant influence on risk aversion in the usually perceived direction that females are more risk-averse than males. Using individual estimates of preference parameters, we find covariance between preferences toward risk and EIS. We present the background reasoning on objectives, the questionnaire, a statistical analysis of the results, and economic interpretations of these, including relations to the literature.

Theoretical Background

This chapter starts by briefly presenting the theoretical background of welfare economics and introducing key aspects such as the indirect utility function, the expenditure function, or the concepts of compensating surplus or equivalent surplus. Next, it draws attention to willingness to pay and willingness to accept, essential measures in environmental valuation. Finally, the chapter summarises the basic mathematical notation of the random utility maximisation models used throughout the book.

Matching in Networks with Bilateral Contracts: Corrigendum

Hatfield and Kominers (2012) introduced a model of matching in networks with bilateral contracts and showed that stable outcomes exist in supply chains when firms’ preferences over contracts are fully substitutable. Hatfield and Kominers (2012) also asserted that in their setting, full substitutability is equivalent to the assumption that all indirect utility representations of each firm’s preferences are quasisubmodular; we show here that this claimed equivalence result does not hold in general. We show instead that full substitutability is equivalent to weak quasisubmodularity of all indirect utility representations. (JEL C78, D85)

Price stabilization or income support? Preferences and cost of programmes

Purpose Over the past 25 years, direct cash transfers (often abbreviated as direct benefit transfer, DBT) to the poorer section of the society are gaining popularity over explicit subsidization of prices of essential commodities. One of the main arguments in favor of DBT is that it will cost the government less money and yet, the consumer benefit will be high. This paper aims to examine the proposition critically. Removal of price support exposes the consumers to market risk, and any income support programme must compensate the consumers accordingly. Design/methodology/approach The authors use a theoretical study where the model of a representative consumer under different specification of preferences is used to compare programme costs under price stabilization and income support programmes. Findings What the authors show in the paper that the comparative cost of the programmes crucially depends on the nature of preferences, as well as the good under question. For certain specifications of the indirect utility function and the marginal utility of money, one programme may cost less than the other. Any policymaker must take account of such nuances before making a blanket prescription. Research limitations/implications The main limitation is that only a representative consumer is taken. Practical implications The specification of indirect utility function plays a decisive role in deciding, which one these two policies, DBT or stabilizing price at a fixed level. Originality/value The main novelty of the paper is in the different specifications of the indirect utility function considered in the paper.