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What is a life worth? Despite its prima facie callousness, determining the value of a human life is necessary for good public policy.

Article Excerpt
AN UNPLEASANT BUT NECESSARY JOB of policymakers is to place a value on saving a human life. Because society has limited resources that it can spend on health and safety improvements, it should obtain the greatest benefit for each dollar spent, and ascertaining an appropriate value is necessary to that effort. As one would expect, the correct numerical value to place on a life, typically called the value of a statistical life, or VSL, is a matter of great controversy.

Hundreds of analyses using widely varying methodologies have been conducted to determine this value. Despite their differences, most of the studies center on one basic idea: The VSL should roughly correspond to the value that people place on their lives in their private decisions. Though most people may say they will spare no expense to avoid a possibly fatal risk, their spending patterns dictate otherwise; we do not all drive armored trucks to work, but instead drive somewhat less safe--and considerably less expensive--cars. Our willingness to accept some risk in exchange for a more easily affordable vehicle suggests there is some limit to how much we will spend to protect our lives.

This article will examine how economists assign a number to the value of a statistical life, and will consider criticisms of both their methodologies and the very concept of a VSL.

DIFFERENT METHODS

Economists and other researchers have used a variety of analyses to determine the value of a statistical life. Below are some of the most common methods, along with some problems frequently ascribed to them.

REVEALED PREFERENCES METHOD Two jobs can differ in any number of ways: One can be in a nicer city, or it can be in a more pleasant working environment, or it can have better fringe benefits, or it can offer better opportunities for advancement than the other job. Or, it can be safer. To estimate the value of a statistical life, economists can exploit the difference in pay between two jobs and determine how much of that difference stems from the difference in the risk of injury or death. Then, the researchers simply multiply that number by the inverse of the risk difference and call the result the value of a statistical life.

For example, if I make $40,000 and my twin brother makes $42,000 at a job that is identical to mine in all respects except for a 1 percent greater chance of death, then an economist assumes that the $2,000 difference is a premium my twin brother requires to accept the riskier job. If he requires $2,000 for a 1 percent greater risk, then I can infer that he is placing a value on his life of $2,000 x (1/0.01), or $200,000.

There are problems with this approach. University of Wyoming professors Jason Shogren and Tommy Stamland argue that nearly all revealed preference studies are biased upwards to some degree. They observe that the wage at a particular job is just enough to entice the marginal worker. The other workers require less money to accept the risk. Thus, the "average" VSL is well below the "marginal" VSL obtained with this method.

Another problem is the need to decide the relevant time period over which fatality rates should be measured when assessing risk. Should we use the actual death rate for an occupation over the previous year or the previous five years? Death rates fluctuate quite a bit from year...