How much should society pay to save a life? According to a recent meta-analysis published in the Journal of Benefit-Cost Analysis by the Cambridge University Press, $8 million is a good place to start.
In policy analysis, this number is often referred to as the Value of Statistical Life (VSL). Many people are initially hesitant when they are presented with the idea of VSL, pointing out that it is unpleasant to assign a monetary value to life. So why should we put a dollar value on lives saved at all?
Imagine that a local government is trying to figure out how many traffic lights to install in a city. Traffic lights are good because they make road intersections safer, but they also require resources to install and maintain. How many traffic lights should the city build?
If we assume that this local government has to raise taxes in order to finance these new stop lights, we need some way to measure the value they provide in order to reach the optimal solution. Each additional stop light may reduce traffic deaths by some small amount, but if they are only providing small benefits then it may be the case that those resources are better spent somewhere else. Would you be willing to pay an additional $1,000 in taxes in a year to reduce your chance of death by one in a million? These are the tradeoffs policymakers confront when they make decisions on behalf of the public.
Once we realize why it is important to have a measure for VSL, we must figure out the best way to calculate it. The article from the Journal of Benefit-Cost Analysis groups VSL studies into three main categories.
First are the studies that try to measure VSL through choices people make in the labor market. Hedonic wage studies use labor market data to see what sorts of workplace risk individuals are willing to accept for higher wages. While these estimates have some drawbacks (e.g. the labor market does not capture the entire population), they are based on reliable and easily accessible data.
There are also studies that measure VSL by looking at individual decisions like people’s willingness to wear helmets while riding bikes. The authors mention that these sorts of studies often rely on researchers making significant assumptions and are therefore not used as often.
The final type of VSL study tries to measure people's willingness to pay for safety through methods such as contingent valuation studies. The biggest benefit of these studies is that they can more specifically ask about different risks that may be more applicable to a public policy context. The drawback is that they hinge on stated preference for risk of death reduction, which can sometimes be different than the revealed preferences people make when faced with real decisions. Words don’t necessarily speak louder than actions.
This new study in the Journal of Benefit-Cost Analysis is unique because it does not get its information from other individual studies about VSL, but rather from other meta analyses about VSL. By taking into account the widest possible set of VSL estimates, the authors are able to get the best possible picture of where VSL is currently.
The authors estimate that the central value for VSL is about $8.0 million, with the 90% confidence interval ranging from $2.4 – $14.0 million. This number largely falls in line with what we see policy makers actually use. The US Department of Transportation has said that they recommend the VSL be $10.9 million after adjusting for inflation.
The literature on VSL continues to evolve as researchers work to better understand tradeoffs between small increases and decreases in risk of death and everything else in life. For policy analysts and policy makers, how human lives are impacted is the most significant part of any proposal. The better information we have about VSL, the more efficiently we can allocate our resources and reach the best possible outcomes.