The probability of death from running a red light is 15%. People who run the red light do not want to lose the 2 minutes where they have to wait for the light to turn green again. Assume the average salary is $25 an hour. Compute the value of life using the Jones-Lee approach.
To compute the value of life using the Jones-Lee approach, we need to consider the trade-off individuals are willing to make between the risk of death and the time saved by running a red light. This approach assumes that individuals are willing to pay to reduce the risk of death.
In this case, let's denote the probability of death from running a red light as p = 0.15 (or 15%). The time saved by running the red light is 2 minutes.
To determine the value of life, we need to calculate the amount of money individuals would be willing to pay to avoid the risk of death. To do that, we can use the concept of a "statistical life." A statistical life represents the value that society places on reducing the risk of death.
To calculate the value of life, we can use the following formula:
Value of life = (Time saved * Average salary) / Probability of death
Substituting the given values:
Value of life = (2 minutes * $25/hour) / 0.15
To convert the time saved from minutes to hours, we divide it by 60:
Value of life = (2/60 hours * $25/hour) / 0.15
Simplifying the expression:
Value of life = ($0.833) / 0.15
Value of life ≈ $5.56
Therefore, using the Jones-Lee approach, the value of life in this scenario is approximately $5.56.