More Explorations of Present Value

7. The website claims to determine your value in dollars. Having looked at some of their computations, I suspect that their way of obtaining that value does not follow good economic procedures. When economists value people (yes, they do that!), they use the technique of present value, basically considering a person as a bond or a machine. What information would you need to estimate the value of a person?

When we answer these questions for bonds or machines, we can check our answers against the price of machines in the marketplace. Although it is currently against the law to buy and sell humans, the prohibition on selling people is recent in terms of human history, and some of the past societies that had slavery left records. Economists who examined these records for the U.S. found that slaves on average gained value until they were in their twenties, then slowly lost value. Why should this pattern have been there?

Age was only one factor that determined the value of a slave. What other things should have mattered and why? (One of the classics of cliometrics, the study of the past using statistics, is Time on the Cross by Robert Fogel and Stanley Engerman (1974). If you want to know more about the economics of slavery, it is a good place to start.)

8. We no longer have a market for humans, but we sometimes need to compute their value. One situation in which we do this is in computing awards in wrongful death lawsuits. If you kill someone by negligence, you may be liable to that person's heirs. The amount you will owe them will depend on whom it is that you killed.

a) Will you have to pay more if you killed a 25-year-old medical doctor who is just starting a practice or a 25-year-old unemployed high school dropout? Explain you answer.
b) Will you have to pay more if you killed a 35-year-old MD making $250K a year of a 65-year-old MD making $250K a year? Explain your answer.

9. When economists are looking at people as machines, they talk about the concept of "human capital." Look up the term on the internet and see what definition you get.

a) The obvious thing you can do to increase your human capital is to get more education. What other things can you do to increase your human capital?
b) As you get older, your human capital may increase but its value may decrease. How can this be?
c) Does rapid technological change increase or decrease human capital? For example, from 1960 until the present the computer field has seen enormous change. Every few years old operating systems and old hardware are obsolete, replaced with newer and different operating systems and hardware. If you have training in existing hardware or operating systems, what happens to the value of your human capital as technology changes?
d) Can you think of other fields in which technology alters the value of human capital?
e) How do people cope when technology threatens their human capital? Give examples.

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