Define compensating variation and equivalent variation

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Reference no: EM133209428

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

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

3. 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?

Reference no: EM133209428

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