Valuing Future Risks to Life

Maureen L. Cropper & Frances G. Sussman , Journal of Environmental Economics and Management 19(2) , 160-174 , September 1990.

Environmental policies that alter future mortality rates may affect both current and future generations. This paper examines willingness to pay for future risk reductions from the perspective of the current generation. The life cycle consumption/saving model implies that an individual discounts future risks to himself at the consumption rate of interest. If capital markets are perfect, the consumption rate equals the market rate of interest; otherwise, the consumption rate exceeds the market rate, and numerical results suggest that the implied discount factor may be substantial. The overlapping generations model implies that a member of the current generation discounts the value of risks to future generations at the rate at which current consumption is substituted for a bequest.

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