a. Define Compensating Variation and Equivalent Variation and show how they related.

b. Which one is the appropriate measure of the "value of life" in a risky project?

c. Define CVi^12 to be the compensating variation for a movement from state 1 to risky state 2 for

individual i. If a worker might die in state 2 what do we expect the value of CVi^12 to be infinite, so no

risky project entailing the possibility of death would be undertaken? How do you resolve this

apparent dilemma?