Willingness-To-Pay Model
The WTP approach is based on measuring what people pay for safety that results in small reductions in their risk of death. For example, if average people are willing to pay $25 for a carbon monoxide detector that stands a one in two hundred thousand chance of saving their life, the WTP model would imply that such purchasers value their life at $5 million ($25 times 200,000). Economists generally use circumstances involving small risk reductions, recognizing that measuring WTP using larger risks will significantly increase the value of a statistical life.
Read more about this topic: Hedonic Damages
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