Value of life
Encyclopedia
The potency of life is an economic value
assigned to life in general, or to specific living organisms. In social and political science
s, it is the marginal cost
of death prevention in a certain class of circumstances. As such, it is a statistical term, the cost of reducing the (average
) number of deaths by one. It is an important issue in a wide range of disciplines including economics
, health care
, adoption
, political economy
, insurance
, worker safety, environmental impact assessment
, and globalization
. Discussions about the value of life would be more-or-less limited to university philosophy departments and religious groups if it were not for the fact that this value must be calculated in an exact quantitative way by practitioners in these disciplines.
In industrial nations, the justice system considers a human life "priceless" thus illegalized any form of slavery; i.e., humans cannot be bought for any price. However, with a limited supply of resources
or infrastructural capital
(e.g. ambulances), or skill at hand, it is impossible to save every life, so some trade-off must be made. Also, this argumentation neglects the statistical context of the term. It is not commonly attached to lives of individuals or used to compare the value of one person's life relative to another person's. It is mainly used in circumstances of saving lives as opposed to taking lives or "producing" lives.
change in their likelihood of death. Note that the VSL is very different from the value of an actual life. It is the value placed on changes in the likelihood of death, not the price someone would pay to avoid certain death.
Economists often estimate the VSL by looking at the risks that people are voluntarily willing to take and how much they must be paid for taking them. These types of studies, which look at a person's actual choices, are known as revealed preference
studies. A common source of such choices is the labor market, where jobs with greater risk of death are seen to correlate with higher wages. Much of this research uses a wage hedonic
approach, which looks at how wages change with changes in job characteristics. Basically, these studies regress
wages on job characteristics like risk of death, occupation, industry, risk of injury, location, etc. By controlling for as many job characteristics as possible, researchers hope to tease out the portion of the wage that is compensating for the risk of death on the job. A recent summary of this literature is the 2003 paper by Viscusi and Aldy.
Another method economists can use to estimate the VSL is by simply asking people ( perhaps through questionnaires) how much they would be willing to pay for a reduction in the likelihood of dying, perhaps by purchasing safety improvements. These types of studies are referred to as stated preference studies. A well known problem with this method is the so-called "hypothetical bias", whereby people tend to overstate their valuation of goods and services.
uses when evaluating health benefits from programs. From the EPA's website:
Data for these studies frequently include wage data from the Current Population Survey
and workplace risk data from the Census of Fatal Occupational Injuries. Both sets of data are collected on behalf of the Bureau of Labor Statistics
.
As an example, the EPA's retrospective study of the clean air act, which focused "primarily on the criteria pollutants sulfur dioxide, nitrogen oxides, carbon monoxide, particulate matter, ozone, and lead", found that the benefits of the program, mostly from improvements to health, outweighed the costs:
The value of improvements to health conditions were converted to dollars by estimating the resulting decrease in the incidence of fatalities and valuing this change using estimations of the VSL from the literature. A table of specific values used for the various improvements in health can be found in the report's executive summary.
To counter this argument, the tobacco industry was increasingly forced to fall back on calculations made by a network of employed academics, who were paid to write op-ed articles from their local newspapers expressing the opinion that smokers already 'paid their way'. http://sciencecorruption.com/ATN167/01713.html They relied on an argument by Kip Viscusi which became known as the "death benefits" -- the idea that, since smokers died earlier than non-smokers, the nation was being saved hospital, pension and nursing-home costs, and that these offset many of the external costs [depending on how these are calculated].
When deciding on the appropriate level of healthcare spending, a typical method is to equate the marginal cost of the healthcare to the marginal benefits received. In order to obtain a marginal benefit amount, some estimation of the dollar value of life is required.
In risk management
activities such as in the areas of workplace safety
, and insurance, it is often useful to put a precise economic value on a given life. There can be no such thing as a perfectly safe or risk free system—one can always make a system safer by spending more money. However, there are diminishing returns
involved.
In transportation modes it is very important to consider the external cost that is paid by the society but is not calculated, for making it more sustainable.
s based on the interest rates prevalent in financial markets. The higher the social discount rate, the more future generations are devalued relative to the current generation.
The anti-globalization movement
objects to the obvious disparity between the value assigned to life in developed nations versus developing nations—most particularly as reflected in World Bank
, World Trade Organization
(WTO), and International Monetary Fund
(IMF) decisions. They point to such numbers as the Intergovernmental Panel on Climate Change
(IPCC) assumption that a developed nation can pay fifteen times more than a developing nation to avert a death due to climate change, as evidence of systematic neglect of the value of statistical life in the poorer South, as opposed to the more developed North. Some also fear that more standard global value of life mechanisms could have consequences for the working people in the developed nations.
A few also debate as to whether animal life deserves to have a value assigned to it, such as in the field of biodiversity
. A moral argument associated with this is the Great Ape personhood
debate, which has become especially poignant since the recent advocacy by some scientists to move the two chimpanzee
species into the genus
Homo
(previously it was considered a hominid).
Value theory
Value theory encompasses a range of approaches to understanding how, why and to what degree people should value things; whether the thing is a person, idea, object, or anything else. This investigation began in ancient philosophy, where it is called axiology or ethics. Early philosophical...
assigned to life in general, or to specific living organisms. In social and political science
Political science
Political Science is a social science discipline concerned with the study of the state, government and politics. Aristotle defined it as the study of the state. It deals extensively with the theory and practice of politics, and the analysis of political systems and political behavior...
s, it is the marginal cost
Marginal cost
In economics and finance, marginal cost is the change in total cost that arises when the quantity produced changes by one unit. That is, it is the cost of producing one more unit of a good...
of death prevention in a certain class of circumstances. As such, it is a statistical term, the cost of reducing the (average
Average
In mathematics, an average, or central tendency of a data set is a measure of the "middle" value of the data set. Average is one form of central tendency. Not all central tendencies should be considered definitions of average....
) number of deaths by one. It is an important issue in a wide range of disciplines including economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, health care
Health care
Health care is the diagnosis, treatment, and prevention of disease, illness, injury, and other physical and mental impairments in humans. Health care is delivered by practitioners in medicine, chiropractic, dentistry, nursing, pharmacy, allied health, and other care providers...
, adoption
Adoption
Adoption is a process whereby a person assumes the parenting for another and, in so doing, permanently transfers all rights and responsibilities from the original parent or parents...
, political economy
Political economy
Political economy originally was the term for studying production, buying, and selling, and their relations with law, custom, and government, as well as with the distribution of national income and wealth, including through the budget process. Political economy originated in moral philosophy...
, insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
, worker safety, environmental impact assessment
Environmental impact assessment
An environmental impact assessment is an assessment of the possible positive or negative impact that a proposed project may have on the environment, together consisting of the natural, social and economic aspects....
, and globalization
Globalization
Globalization refers to the increasingly global relationships of culture, people and economic activity. Most often, it refers to economics: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import...
. Discussions about the value of life would be more-or-less limited to university philosophy departments and religious groups if it were not for the fact that this value must be calculated in an exact quantitative way by practitioners in these disciplines.
In industrial nations, the justice system considers a human life "priceless" thus illegalized any form of slavery; i.e., humans cannot be bought for any price. However, with a limited supply of resources
Natural resource
Natural resources occur naturally within environments that exist relatively undisturbed by mankind, in a natural form. A natural resource is often characterized by amounts of biodiversity and geodiversity existent in various ecosystems....
or infrastructural capital
Infrastructural capital
Public capital is the aggregate body of government-owned assets that are used as the means for private productivity. Such assets span a wide range including: large components such as highways, airports, roads, transit systems, and railways; local, municipal components such as public education,...
(e.g. ambulances), or skill at hand, it is impossible to save every life, so some trade-off must be made. Also, this argumentation neglects the statistical context of the term. It is not commonly attached to lives of individuals or used to compare the value of one person's life relative to another person's. It is mainly used in circumstances of saving lives as opposed to taking lives or "producing" lives.
Treatment in Economics - The Value of a Statistical Life (VSL)
There is no standard concept for the value of a specific human life in economics. However, when looking at risk / reward trade-offs that people make with regard to their health, economists often consider the value of a statistical life (VSL). The VSL is the value that an individual places on a marginalMarginal concepts
In economics, marginal concepts are associated with a specific change in the quantity used of a good or service, as opposed to some notion of the over-all significance of that class of good or service, or of some total quantity thereof.- Marginality :...
change in their likelihood of death. Note that the VSL is very different from the value of an actual life. It is the value placed on changes in the likelihood of death, not the price someone would pay to avoid certain death.
Economists often estimate the VSL by looking at the risks that people are voluntarily willing to take and how much they must be paid for taking them. These types of studies, which look at a person's actual choices, are known as revealed preference
Revealed preference
Revealed preference theory, pioneered by American economist Paul Samuelson, is a method by which it is possible to discern the best possible option on the basis of consumer behavior. Essentially, this means that the preferences of consumers can be revealed by their purchasing habits...
studies. A common source of such choices is the labor market, where jobs with greater risk of death are seen to correlate with higher wages. Much of this research uses a wage hedonic
Hedonic regression
In economics, hedonic regression or hedonic demand theory is a revealed preference method of estimating demand or value. It decomposes the item being researched into its constituent characteristics, and obtains estimates of the contributory value of each characteristic...
approach, which looks at how wages change with changes in job characteristics. Basically, these studies regress
Regression analysis
In statistics, regression analysis includes many techniques for modeling and analyzing several variables, when the focus is on the relationship between a dependent variable and one or more independent variables...
wages on job characteristics like risk of death, occupation, industry, risk of injury, location, etc. By controlling for as many job characteristics as possible, researchers hope to tease out the portion of the wage that is compensating for the risk of death on the job. A recent summary of this literature is the 2003 paper by Viscusi and Aldy.
Another method economists can use to estimate the VSL is by simply asking people ( perhaps through questionnaires) how much they would be willing to pay for a reduction in the likelihood of dying, perhaps by purchasing safety improvements. These types of studies are referred to as stated preference studies. A well known problem with this method is the so-called "hypothetical bias", whereby people tend to overstate their valuation of goods and services.
Policy applications of the VSL
VSL estimates from wage hedonics are what the EPAUnited States Environmental Protection Agency
The U.S. Environmental Protection Agency is an agency of the federal government of the United States charged with protecting human health and the environment, by writing and enforcing regulations based on laws passed by Congress...
uses when evaluating health benefits from programs. From the EPA's website:
- Beginning in 2004 EPA's Office of Air and Radiation (OAR) used an estimate of $5.5 million (1999 dollars; $6.6 million in 2006 dollars) for the analysis of air regulations. This estimate was derived from the range of values estimated in three meta-analysesMeta-analysisIn statistics, a meta-analysis combines the results of several studies that address a set of related research hypotheses. In its simplest form, this is normally by identification of a common measure of effect size, for which a weighted average might be the output of a meta-analyses. Here the...
of VSL conducted after EPA's Guidelines were published in 2000 (Mrozek and Taylor (2000), Viscusi and Aldy (2003), and later, Kochi, et al. (2006).) However, the Agency neither changed its official guidance on the use of VSL in rule-makings nor subjected the interim estimate to a scientific peer-review process through the Science Advisory Board (SAB) or other peer-review group.
Data for these studies frequently include wage data from the Current Population Survey
Current Population Survey
The Current Population Survey is a statistical survey conducted by the United States Census Bureau for the Bureau of Labor Statistics . The BLS uses the data to provide a monthly report on the Employment Situation. This report provides estimates of the number of unemployed people in the United...
and workplace risk data from the Census of Fatal Occupational Injuries. Both sets of data are collected on behalf of the Bureau of Labor Statistics
Bureau of Labor Statistics
The Bureau of Labor Statistics is a unit of the United States Department of Labor. It is the principal fact-finding agency for the U.S. government in the broad field of labor economics and statistics. The BLS is a governmental statistical agency that collects, processes, analyzes, and...
.
As an example, the EPA's retrospective study of the clean air act, which focused "primarily on the criteria pollutants sulfur dioxide, nitrogen oxides, carbon monoxide, particulate matter, ozone, and lead", found that the benefits of the program, mostly from improvements to health, outweighed the costs:
- The direct benefits of the Clean Air Act from 1970 to 1990 include reduced incidence of a number of adverse human health effects, improvements in visibility, and avoided damage to agricultural crops. Based on the assumptions employed, the estimated economic value of these benefits ranges from $5.6 to $49.4 trillion, in 1990 dollars, with a mean, or central tendency estimate, of $22.2 trillion. These estimates do not include a number of other potentially important benefits which could not be readily quantified, such as ecosystem changes and air toxics-related human health effects. The estimates are based on the assumption that correlations between increased air pollution exposures and adverse health outcomes found by epidemiological studies indicate causal relationships between the pollutant exposures and the adverse health effects.
- The direct costs of implementing the Clean Air Act from 1970 to 1990, including annual compliance expenditures in the private sector and program implementation costs in the public sector, totaled $523 billion in 1990 dollars.
The value of improvements to health conditions were converted to dollars by estimating the resulting decrease in the incidence of fatalities and valuing this change using estimations of the VSL from the literature. A table of specific values used for the various improvements in health can be found in the report's executive summary.
Tobacco industry
The cigarette industry was particularly concerned with Value of Life calculations since it came under regular attack in the 1980s and 1990s for the "Social Cost" of smoking on the national economy. The economic arguments for increasing excise taxes on cigarettes was that these taxes compensated the State for a whole range of externalities that smoking imposed, including the costs of hospital and medical care for smokers and non-smokers alike, disability pensions for smoking-related diseases, welfare payments made to surviving spouses, the cost of street, home and office cleaning, the burden of home and forest fires, etc.To counter this argument, the tobacco industry was increasingly forced to fall back on calculations made by a network of employed academics, who were paid to write op-ed articles from their local newspapers expressing the opinion that smokers already 'paid their way'. http://sciencecorruption.com/ATN167/01713.html They relied on an argument by Kip Viscusi which became known as the "death benefits" -- the idea that, since smokers died earlier than non-smokers, the nation was being saved hospital, pension and nursing-home costs, and that these offset many of the external costs [depending on how these are calculated].
Uses
Since resources are finite, tradeoffs are inevitable, even regarding potential life-or-death decisions. The assignment of a value to individual life is one possible approach to attempting to make rational decisions about these tradeoffs.When deciding on the appropriate level of healthcare spending, a typical method is to equate the marginal cost of the healthcare to the marginal benefits received. In order to obtain a marginal benefit amount, some estimation of the dollar value of life is required.
In risk management
Risk management
Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities...
activities such as in the areas of workplace safety
Workplace safety
Workplace safety & health is a category of management responsibility in places of employment.To ensure the safety and health of workers, managers establish a focus on safety that can include elements such as:* management leadership and commitment...
, and insurance, it is often useful to put a precise economic value on a given life. There can be no such thing as a perfectly safe or risk free system—one can always make a system safer by spending more money. However, there are diminishing returns
Production theory basics
Production refers to the economic process of converting of inputs into outputs. Production uses resources to create a good or service that is suitable for use, gift-giving in a gift economy, or exchange in a market economy. This can include manufacturing, storing, shipping, and packaging. Some...
involved.
In transportation modes it is very important to consider the external cost that is paid by the society but is not calculated, for making it more sustainable.
Criticisms
There are also intergenerational aspects to the value of life. Some economists calculate social discount rateSocial discount rate
Social discount rate is a measure used to help guide choices about the value of diverting funds to social projects. It is defined as "the appropriate value of r to use in computing present discount value for social investments"...
s based on the interest rates prevalent in financial markets. The higher the social discount rate, the more future generations are devalued relative to the current generation.
The anti-globalization movement
Anti-globalization movement
The anti-globalization movement, or counter-globalisation movement, is critical of the globalization of corporate capitalism. The movement is also commonly referred to as the global justice movement, alter-globalization movement, anti-globalist movement, anti-corporate globalization movement, or...
objects to the obvious disparity between the value assigned to life in developed nations versus developing nations—most particularly as reflected in World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
, World Trade Organization
World Trade Organization
The World Trade Organization is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade , which commenced in 1948...
(WTO), and International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
(IMF) decisions. They point to such numbers as the Intergovernmental Panel on Climate Change
Intergovernmental Panel on Climate Change
The Intergovernmental Panel on Climate Change is a scientific intergovernmental body which provides comprehensive assessments of current scientific, technical and socio-economic information worldwide about the risk of climate change caused by human activity, its potential environmental and...
(IPCC) assumption that a developed nation can pay fifteen times more than a developing nation to avert a death due to climate change, as evidence of systematic neglect of the value of statistical life in the poorer South, as opposed to the more developed North. Some also fear that more standard global value of life mechanisms could have consequences for the working people in the developed nations.
A few also debate as to whether animal life deserves to have a value assigned to it, such as in the field of biodiversity
Biodiversity
Biodiversity is the degree of variation of life forms within a given ecosystem, biome, or an entire planet. Biodiversity is a measure of the health of ecosystems. Biodiversity is in part a function of climate. In terrestrial habitats, tropical regions are typically rich whereas polar regions...
. A moral argument associated with this is the Great Ape personhood
Great Ape personhood
Great ape personhood is a movement to create legal recognition of bonobos, common chimpanzees, gorillas, and orangutans as bona fide persons.-First steps:...
debate, which has become especially poignant since the recent advocacy by some scientists to move the two chimpanzee
Chimpanzee
Chimpanzee, sometimes colloquially chimp, is the common name for the two extant species of ape in the genus Pan. The Congo River forms the boundary between the native habitat of the two species:...
species into the genus
Genus
In biology, a genus is a low-level taxonomic rank used in the biological classification of living and fossil organisms, which is an example of definition by genus and differentia...
Homo
Homo (genus)
Homo is the genus that includes modern humans and species closely related to them. The genus is estimated to be about 2.3 to 2.4 million years old, evolving from australopithecine ancestors with the appearance of Homo habilis....
(previously it was considered a hominid).
See also
- Rational choice theoryRational choice theoryRational choice theory, also known as choice theory or rational action theory, is a framework for understanding and often formally modeling social and economic behavior. It is the main theoretical paradigm in the currently-dominant school of microeconomics...
- UtilitarianismUtilitarianismUtilitarianism is an ethical theory holding that the proper course of action is the one that maximizes the overall "happiness", by whatever means necessary. It is thus a form of consequentialism, meaning that the moral worth of an action is determined only by its resulting outcome, and that one can...
- Value (personal and cultural)Value (personal and cultural)A personal or cultural value is an absolute or relative ethical value, the assumption of which can be the basis for ethical action. A value system is a set of consistent values and measures. A principle value is a foundation upon which other values and measures of integrity are based...
- Intrinsic value (ethics)Intrinsic value (ethics)Intrinsic value is an ethical and philosophic property. It is the ethical or philosophic value that an object has "in itself" or "for its own sake", as an intrinsic property...
External links
- $9.1 million for a life http://www.nytimes.com/2011/02/17/business/economy/17regulation.html
- "The Value of a Human Life: $129,000" (one year) http://www.time.com/time/health/article/0,8599,1808049,00.html
- http://www.fhwa.dot.gov/legsregs/directives/techadvs/t75702.htm
- http://www.ojp.usdoj.gov/bjs/