Write down a hedonic wage equation to explain the log of worker i's annual wage. Make certain that all terms are defined. Assume that the risk of workplace death (ri) is measured in units of one in 10,000 per year. Explain how you would calculate the VSL given a worker's mean wage and the risk variable's coefficient.
Assume you conducted a contingent valuation study to determine how much adults would pay to reduce their risk of dying over a year. A risk reduction of 1 in 10,000 is valued by half of the sample. The other half values a 5 in 10,000 risk reduction. The average WTP for the 5 in 10,000 risk reduction is NOT five times that of the 1 in 10,000 risk reduction. (Respondents fail a strong scope test.) Describe the implications for the VSL.