Posted by on Dec 28, 2012 in Academic, Economics, Statistics

What is the value of a human life? To most people the immediate response may be “priceless” or “infinite”. However, when considering a world with finite resources and the inevitable risk of death that arises from various human activities, one would have to admit that there is a limit to the value one places on a human life. If one were to truly value a human life as infinite one would exhaust all resources on simply preserving human life. This is not reasonable. It is impossible to save every life, so in the real world some trade-offs must be made. Some risk of death must be admitted in order to gain economic efficiency in other areas. In order to do that, a value must be placed on a human life. It is important to note that I am only talking about the risk of death at the margins and not certain death of any one particular individual.

 

Valuing One’s Own Life

Whenever an individual decides to do something that involves the risk of death, they are implicitly placing a finite value on their own life, and there is no way to avoid such decisions. There is no sure way to avoid death and we will all die eventually anyway, so even by avoiding activities that involve the risk of death an individual is indirectly deciding to participate in other activities that involve the risk of death. A sedentary lifestyle increases the risk of premature death, so even doing nothing involves risk of death. Making choices that could lead to ones death is unavoidable.

So how can one place a value on life based on the decisions one makes? The value one implicitly places on ones life when making a decision is equal to the the utility one derives from that decision divided by the probably that one will die as a result of that decision. For example, If I wanted to go skydiving and I derived $80 of utility from that decision and the risk of death for that one event were 1 in 150,000, I would be implicitly valuing my life at $12 million ( $80 / (1/150,000) ).

 

The Value of a Statistical Life
This idea of placing a value on a human life is not merely a philosophical concept. It is a concept that is used in practice by many organizations (Robinson 283). A common measure used by organizations to value a human life is the value of a statistical life (VSL). The VSL is the value a person places on a marginal change in their risk of death. This value is estimated and used by government organizations to make policy decision when the risk of death is involved. Recent VSL estimates used range from around $6 million by the Transportation Department to $9.1 million by the Environmental Protection Agency (Appelbaum).

Government organizations must use measures like VSL in order to make decisions about how much money to spend on a project or what level of regulation to place on industry in order to reduce human deaths. If the risk of death can be decreased in a given environment so that it is estimated that one life would be saved by spending a certain amount of money, the money should be spent if the cost is less than the VSL, but should not if it is greater.

One way of estimating VSL is through stated preference studies, where economists use surveys to ask individuals hypothetical situations that could be used to infer a VSL (Robinson 284). These type of studies are often easier to conduct than other types of studies. One problem with this approach is that because of the hypothetical nature of the surveys, responses may not reflect reality. It could be possible that the answers people give on the surveys may not accurately reflect what they would do in real life situations.

Because of the drawbacks of stated preference studies, another method of estimating VSL that is more commonly used is revealed preference studies, where economists consider risks that individuals voluntarily take and how much those individuals are paid for taking those risks (Robinson 284). The Bureau of Labor Statistics offers data that can be used to conduct such studies using labor and fatality data from hazardous jobs (http://www.bls.gov/news.release/cfoi.toc.htm).

 

Problems with Valuing a Life
There are many problems that arise when one attempts to place a value on a life. It is hard to get accurate estimates of values such as VSL, not all individuals value their life the same, and individuals don’t always accurately estimate risk. Because of the difficulty of obtaining accurate estimates of VSL different agencies often use different values and the estimates are often disputed and politicized (Appelbaum; Doucouliagos, Stanley, and Giles; How to value life).

VSL varies by individual, and possibly even by time for the same individual. Wealthy individuals probably would have higher VSLs measured in monetary units because they are more likely to place a lower value or utility on their marginal wealth. They would place higher monetary values on activities that involve risk of death simply because they have more money. However, it could be the case that even adjusted for wealth some people really do value their life more than others. One could also imagine that a person could change the value they place on their own life based on the changes in their mood and preferences over time, so VSL could vary not only among different individuals, but even for any one particular individual. Age could also play a role in VSL, since older individuals have less life left to live than younger individuals.

Individuals don’t correctly estimate risk involved with all activities they participate in, and in many cases risks are unknown. So, individuals are not always, and probably rarely, consistently valuing their life. They may be implicitly undervaluing of overvaluing their life at different times simply because they are not always fully aware of the risks they are taking on. Considering the risk of death isn’t something the typical person concerns themself with on a daily basis so they may be making decisions that they would not if they were more fully aware of the risks involved in the activities they choose to participate in. Whether or not individuals accurately measure their own risk and life values may not be a problem for government organizations in and of itself, as long as government organizations can account for any discrepancies, but it does make coming up with accurate estimates that much more difficult.

 

Conclusion
While measures used to place a value on a human life such as VSL are difficult to measure and often inaccurate, they still provide much value in making policy decisions. It is better to at least get even a rough estimate of a life value than to not even consider the concept at all. The value of a life must be quantified, even if imperfectly, if we are to even attempt to reach the most efficient allocation of resources in areas where life and death are at stake. Imperfect information may pose a problem in accurately valuing life, but as information gathering techniques improve and information costs decline, we will likely see more accurate estimates of life values, which may ultimately lead to more lives being saved because resources can more efficiently be allocated in the short term and economic prosperity will be greater as a result in the long term, which will lead to even more saved lives due to higher standards of living. So, ironically, placing a finite value on life, may actually be used as a way to save “priceless” lives.

 

References

Appelbaum, Binyamin. “As U.S. Agencies Put More Value on a Life, Businesses Fret.” The New York
Times 17 February 2011, A1.

Doucouliagos, Chris & Stanley, T.D. & Giles, Margaret, 2012. “Are estimates of the value of a statistical
life exaggerated?,” Journal of Health Economics, Elsevier, vol. 31(1), pages 197-206.

“How to value life? EPA devalues its estimate.” msnbc.msn.com, 10 July 2008.
<http://www.msnbc.msn.com/id/25626294/ns/us_news-environment/t/how-value-life-epa-devalues-its-estimate>

Robinson, Lisa A. “How US Government Agencies Value Mortality Risk Reductions” Review of
Environmental Economics and Policy, volume 1, issue 2, summer 2007, pages 283–299.

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