There are two types of coal mines in operation: “above-ground” mines, which involve very little risk to the miners, and underground mines, which are considerably more dangerous. Each year, there is a 1 in 1000 chance that a miner working in an underground mine will die due an on-the-job accident. The probability of dying among workers in “above-ground” mines is essentially zero. The average annual salary of underground miners is $46,000, while the average annual salary of “above-ground” miners is $40,000. The two jobs require identical skills for their workers.
a) What would be an economist’s estimate of the value of a statistical life of a miner?
b) Assuming that miners can freely choose which type of mine they want to work in, what can we say about an underground miner’s attitudes toward risk, relative to an “above-ground” miner?
c) If the Environmental Protection Agency mandated that all underground mines be converted to “above-ground” mines, would the (formerly) underground miners be hurt by this mandate or helped? What about the owners of the underground mines? Assume that after the mandate, the salary of all “above-ground” miners stays at $40,000.