Endogenous private safety investment and the willingness to pay for mortality risk reductions

When individuals cannot undertake safety-improving expenditures, the effect of an increase in the initial risk on the willingness to pay (WTP) for mortality risk reduction is positive because of the dead-anyway effect. When they can undertake safety-improving expenditures, the effect of an increase in the initial risk is governed by two effects: The dead-anyway effect which is positive and the high-payment effect which is negative. We treat the two types of risk-reducing expenditures, endogenous and exogenous, as inputs in a safety-improving technology function and find conditions that guarantee that the high-payment effect dominates.