Loss of Earnings from Premature Death
We are in the midst of estimating the economic impact of a discounted loss of earnings from a premature death and wondering if there is precedence for using IMPLAN for this? We have literature for calculating the discounted loss of earnings (this is done all the time in the courts for wrongful death) but wonder the best way to model the economic impact of this? Any guidance is appreciated.
Hello Spencer, We are unaware of any precedence as concerns the use of IMPLAN in this regard. This is akin to modeling a change in population, except that in this case, it's likely that someone would move to the area and fill the deceased's position and earn the income. The net effect is likely to be zero, or at least not 100% of the initial decline. For the individual who died and that individual's heirs, the lost income is certainly permanent net loss. However, it is much less clear that it is a net loss to the local area (economically speaking, not taking account of any special technological insights or political connections this person may have used for the benefit of the community, for example). Regards, IMPLAN Staff
Thanks for the reply. What may make this question a bit unique is that it deals with production agriculture. The scenario we've defined is a primary farm operator (typically male) prematurely dies from a farm accident at age 45. This leads to the following assumed response by remaining family: 1) No life insurance on deceased farm operator 2) No succession plan for farm in place, which implies a major disruption to farm operation 3) Widow is without at least a portion of normal/expected income (likely to use USDA Ag Census net income/farmer as a source for income) and therefore reduces household expenditures due to a smaller household. 4) We further assume a reduction in purchases for the farm in the short term (1 yr) due to disruption. 5) In the absence of her husband, a son and his family leaves his (and wife's if working) current employment (likely filled shortly thereafter), leases the farm and assumes the responsibilities of the farm from the widow. 6) The son's lease payments cover the widow's (reduced) living expenses I think the best approach is to model the loss of household income from the primary wage-earner being prematurely killed, which would be defined as the difference between what the net income was prior to his death and the lease payments to the widow from the son. The complication being that this is agriculture and household expenditures may be different than their urban counterparts - I am not aware of anything to use in its place, though. I think it is a safe assumption that after "the dust settles" (son fully assumes responsibilities) the farm-related expenditures (now made by the son and not the father) will be the same as prior to the father's death. Perhaps the best route to take would be to model reduced farm expenditures in year one plus some sort of a discounted average reduced household expenditure for years 45-65 of what would have been a "typical" working life (although many farmers never "retire"). Assuming a typical Midwestern corn/soybean farm, I think a good option for modeling reduced purchases in year one is determine the sales/employee for Sectors 1 and 2 and factor that by a 25-33% reduction. For the reduced household expenditures component we can project what household expenditures would be from what would have been years 45-65 of the deceased farmer's life and determine a discounted annual average (not the total discounted amount from all 20 years since that would be inappropriate in this instance) and reduce the corresponding household category. Thoughts? Do you agree with the above proposed methodology? If not, how is the best way to model reduced purchases and reduced household expenditures from a farm household?
Hello Spencer, Thank you for providing further detail. Based on your description, we see no issues with your proposed methodology. Below are just a couple of thoughts for your consideration. [ul] [li]What is the likelihood that the farm will produce at the same level when managed by the son?[/li] [li]What is the likelihood that the woman will lease the land rather than selling the property and moving elsewhere? [/li] [/ul] Regards, IMPLAN Staff
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