According to the Food and Drug Administration, the value of a statistical life (VSL) was $9.3 million in 2015.
Assigning a dollar value to a human life may seem a bit callous, but it is a necessity.
Government agencies are required to conduct a cost-benefit analysis for every regulation expected to cost $100 million or more in a year. The VSL is part of the benefits side of the equation.
The Wall Street Journal had an interesting story today about the process that is used by government agencies to come up with the VSL.
The estimates are generated from information gleaned from surveys and market data that reveal the choices people make in different risky situations.
“The beauty of the methodology is that it uses values people have expressed through the market rather than a government office arbitrarily making up a number,” according to W.Kip Viscusi, an economist at Vanderbilt University. “It uses the value people themselves think risks are worth.”
Economists analyze what people spend, for example on cars with improved safety features, as well as what they accept, such as hazard pay for more dangerous jobs. With this information, the economists figure out how much an individual is willing to pay to reduce a risk and then multiply the amount over the population exposed to the risk.
The idea of using consumer responses to everyday risks to calculate the value of a statistical life was developed in 1968 by an economist named Thomas Schelling. His objective wasn’t to tackle the worth of life. It was to value the postponement of death.
It would be interesting to see the details of what goes into the VSL, and what types of risks they include.
Does the USDA consider the premium people are willing to pay for organic food as a measure of risk reduction?
Does the FDA look at how much people are willing to pay to enroll in a smoking cessation program as a way to value the postponement of death?
Does the FCC look at how much time people spend wasting their time reading this blog as the equivalent of hazard pay?
So while it is certainly true that you can’t measure the psychic value of someone’s life, I see no problem with these statistical approaches to cost-benefit analysis.
And while we’re at it, if we truly value a life, let’s get rid of the death penalty.