Saturday, February 19, 2011

How much is a life worth?

According to the EPA, $9.1 million.  The Food and Drug Administration says $7.9 million, which is a big jump over the $5 million estimate they used in 2008 (the economy tanks, but the value of life goes up?).  The US Department of Transportation has been using $6 million. 

Some readers may object that life is priceless or, more precisely, too precious to assign a monetary value.  However, economic analysis of regulations requires some metric for the benefits side of the equation.  Regulatory costs are straightforward, but the benefits largely consist of improved health and longevity.  Without a dollar value for life, we could focus only on cost and thus end up running the risk that we would not adopt policies with high costs ane even higher benefits.  NYT reports that businesses are becoming concerned that agencies are planning to raise their estimates (which seem to have become frozen in the later years of Bush 43), which would allow more proposed regulations to past a cost-benefit test. 

Fellow Harvard graduate student W. Kip Viscusi is the world's leading expert in the economic value of life.  Viscusi examined the trade-off between safety risk and compensation in the labor market.  The basic idea is that if jobs with a 1 in 1000 risk of death (e.g., fishermen) paid $1000 more per year than jobs with a zero risk, a logical person would be willing to pay $1,000,000 to avoid a certain death.  For what it is worth, Viscusi currently pegs the value of a life at $8.7 million. 

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