The Value of Individual and Societal Risks to Life and Health
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associated with that wage increase, (1 – p)u′+pv′, equals the difference in the utility
levels between the two states of the world, u – v. The formulation in equation(7.1) is so
fundamental to the VSL literature that it has been “rediscovered” dozens of times.
Note that von Neumann-Morgenstern utility functions are only defined up to a
positive linear transformation. Thus, the utility functions u and v are equivalent to a+bu
and a+bv where a and b are positive constants. In the absence of some normalization
as is provided by the denominator, (1 – p)u′+pv′, the VSL corresponding ...
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