reduction can be produced, which is in sharp contrast to the average value estimation of risk reduction as done in a conventional contingent valuation study.

This paper is organized as follows. In the next two sections, we briefly present a literature review on WTP for mortality reduction and VSL estimation. The relationship between WTP for mortality risk reduction and VSL is developed in Section 4. In section 5, we present our contingent valuation survey. The econometric methods are illustrated in section 6, and the data and the estimation results are presented in section 7 and 8. VSL calculation and simulation are presented in section 9. We conclude the paper in section 10.

# **2. VSL Estimation Methods**

VSL estimation methods can be categorized into two types.<sup>3</sup> The first type of methods measures the loss of direct income. One representative approach is the so-called human-capital method, which calculates the present value of future income forgone due to a premature death. These approaches however have two well recognized short-comings. First, they do not take into consideration the intangible impacts on individual and family well-being such as suffering and loss of leisure, therefore are often regarded as the lower bound of the social cost. Second, these approaches only focus on the active population but ignore the value of children and aged people.

The second type of approach measures willingness to pay or accept changes in human mortality risk. The principle of this type of methods is to use people’s preferences as a basis for the measurement of increase (or reduction) in human well-being related to the reduction (or increase) of mortality risk (World Bank, 1998). As the “consumer surplus” from living can be many times higher than human capital, studies using the willingness-to-pay approach generally give a higher valuation of life than those using direct income losses. Using surveys in Taiwan and Los Angeles, Alberini and Krupnick (2000) found the WTP estimates gave values 1.61-2.66 times higher than the loss of direct income.

There are two ways of empirically estimating individuals’ WTP for mortality risk reduction: the revealed preference approach, which can use compensating wage or consumer behavior data, and the stated preference approach, such as the contingent valuation method (Krupnick et al., 2002). The revealed preference approach often uses differences in wage rate to measure compensations that people require for differences in risk of dying or falling ill caused by occupational hazards. Viscusi and Aldy (2003) provide a comprehensive survey of compensating wage studies in the US and other countries. The recommended VSL figures range from 4 to 9 million dollars for the US case and 0.8 to 74.1 million dollars for other countries.

Besides the sensitivities of the estimation results to the studied sectors or markets, the VSL estimation with the revealed preference approach also suffers from some other serious limitations. First, in the labor market or durable goods consumption markets, inactive population, especially the elder people, cannot be included. Secondly, workers in the labor market may not be perfectly aware of the workplace risk. Thirdly, this approach also implicitly assumes that

> 3 A detailed introduction of the various approaches using the loss of direct income can be found in World Bank (1998).

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