Question 21

Section C: has three questions: Application 1, Application 2 & Application 3 and each question is worth of 20 points (60 Points total); points will be taken off if you do not provide explanations and show the details of your calculations).

Application 1 (20 points).

Consider a study found that failure to purchase or correctly use car seats on the part of the mother's raised the risk of death to their children by 0.0003, or three out of ten thousand from birth to age four. It collected data on 190 people (all women) leaving a shopping mall with their kids; only 33% either had a car seat or were using it correctly. The study calculated that properly hooking the kids in would take about 89 hours over four years. It hypothesized that the opportunity cost of women's time would be an important determinant of whether or not car seats were installed or properly used. Using a statistical model it concluded that controlling for some other factors, moms with a higher opportunity cost to their time (a higher foregone wage), were statistically less likely to install or properly use a car seat. The study calculated that a wage increase of $2.40 per hour would (all other things equal) induce a mom to forgo installing or properly using a car seat. Answer the following questions

1. Is the estimated value of a child's life here more or less than the figure used by EPA ($6 million, 5 points)?

2. If the risk of death increases to 0.0005 (or five out of ten thousand from birth to age four) does it increase or decrease the estimated value of a child's life (5 points)?

3. What will be the estimated value of a child's life, if the risk of death is same as before (0.0003) but due to an improved technology hooking the kids in a car seat would take about 69 hours over four years (5 points)?

4. How the estimated value of a child's life is compared with EPA estimates if the wage increase is $2.6/hour in the situation listed in # 3 (5 points)?