How to Value a Statistical Life


Questions -- Would you be willing to pay higher state taxes to reduce the number of elderly persons dying from asthma next year by 20%? Would you vote for federal subsidies to pharmaceuticals to offset the costs of producing EpiPens, if that reduced deaths of children due to allergies by 15%? Would you lobby your city council to impose greater safety rules and penalties on real estate developers if that prevented workplace deaths of construction workers by 45%?

Credit: Pixabay
Credit: Pixabay

More fundamentally, on what basis should governments determine the value of human life, as a means of forming/informing public policy?

The answer to all of these questions is in the concept called ďThe Value of a Statistical LifeĒ (VSL). The VSL is an estimate of the amount of money the public wants to spend to reduce the loss of one life. Government agencies use the VSL to calculate the benefits of regulations. One of the leaders in this field, Mr. W. Kip Viscusi, has done extensive research on the VSL. In fact, in 2003, he produced a paper that summarized the results of 100 studies on the topic.

Here is an example of how the concept is used. Suppose your company wanted to lease a building owned by the local municipality; both the land and the building were owned by that government. Letís say that the EPA had flagged that building for lead paint and asbestos. Letís also say that because a gas station was on that spot from 1950 through 2005, that that soil and water supply systems were hazardous.

Now because your company will bring 2,000 new jobs to that community, the local government has to conduct a cost/benefit analysis to determine if the cost of meeting the safety and health standards was worth the benefits of the leasing income and increased tax base from the 2,000 new hires. Finally, letís say that the municipality has 100,000 tax-paying voters who would be willing to pay $200 more in taxes a year to make this lease happen, because the last company that leased the building averaged five cancer deaths a year, and making these changes would reduce the cancer deaths to zero a year. The VSL would be calculated in this manner:

    $200 [The increase in taxes per voting tax payer] X 100,000 [The number of voting tax payers] /5 [the expected reduction in cancer deaths from 5 to 0] = $4,000,000 per statistical life; $20 million dollars would be needed to save five statistical lives.

Knowing that each statistical life is worth $4 million dollars enables the local government to determine if it would be cheaper to abate the safety and health concerns or just pay a wrongful death settlement. If the community is poor and not legally savvy, then the municipality may choose not to raise taxes (that is always a crowd pleaser) and figure that a $1 million dollar settlement would make any law suit go away. After all, one would have to be pretty sophisticated to be aware of the existence, statistical power and economic value of the VSL concept. In effect, this is an example of the analytics of public policy.

With this information in mind:

  • Do you believe that local, state or federal agencies should use the VSL as a means of forming/informing public policy? Why or why not?
  • Are you ethically comfortable with the VSL concept? Why or why not?
  • If you do not agree with the premises of the VSL, then what would you recommend as an alternative method?

Please share your thoughts.

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Bryan Beverly, Statistician, Bureau of Labor Statistics

Bryan K. Beverly is from Baltimore. He has a BA in sociology from Morgan State University and an MAS degree in IT management from Johns Hopkins University. His continuing education consists of project management training through the ESI International/George Washington University programs. He began his career in 1984, the same year he was introduced to SAS software. Over the course of nearly 30 years, he has used SAS for data processing, analytics, report generation, and application development on mainframes, mini-computers, and PCs. Bryan has worked in the private sector, public sector, and academia in the Baltimore/Washington region. His work initially focused on programming, but over the years has expanded into project management and business development. Bryan has participated in in-house SAS user groups and SAS user group conferences, and has published in SAS newsletters, as well as company-based newsletters. Over time, his publications have expanded from providing SAS technical tips to examining the sociological, philosophical, financial, and political contexts in which IT is deployed. He believes that the key to a successful IT career is to maintain your skills and think like the person who signs your paycheck.

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Re: Value of a life
  • 11/1/2016 8:45:58 AM
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@SethB,  Good questions; no easy answers. Because this is a democracy, we have in principle reserved the right to establish what we feel is the worth of other human beings, and that price is often a function of the market place. For example, if there is a treatment plant across the tracks where the poor and working class live, then the voters (who are also often active tax payers) establish a dollar value that they will give in taxes to save the lives of those folks across the tracks. If saving lives means that community finds a consensus on how much those folks are worth, then is that the greater good?  If we say that environmentally impacted lives matter, and there is a valuation of those lives to find consensus on the tax level, then is that for the greater good? If environmental justice is how love is expressed in public policy, then do you tax the people as much as necessary to save every life, regardless of tax payer complaints? So to your point, there are competing interests - what the tax payers want to pay, what the community deems morally right, the unvarnished truth that we do establish market value to human life, the need to be a responsible public official by sacrificing the few to meet the needs of the many (that helps to get reelected too).  Yes - a lot of tough and uncomfortable questions that say a lot about us and the dollar value we put on humanity. In fact, that is why we had a civil war - there was a national public policy disagreement on the value of human beings and whether it was for the greater good of our GNP (our transition to being a world power was accelerated by our cotton exports).

Can we have social and econimic prosperity without sacrificing our moral sensibilities? Or do we reinterpret our moral sensibilities to support our fiscal initiatives?  Is the definition of the greater good absolute or relative? Does the institution serve the individual or does the individual serve the institution?

You have highlighted some very tough issues my friend!

Re: Value of a life
  • 10/31/2016 9:16:57 PM
NO RATINGS

This reminds me of the different types of morality and business ethics taught in school.  Do you always do what is for the greater good, the individual be damned or is it conditional on each situation or is profit the only concern?

Re: Value of a life
  • 10/28/2016 11:11:55 AM
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@Joe, Point well taken; no perfect solutions.

Re: Value of a life
  • 10/28/2016 11:08:34 AM
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> this would be easy if elections could be done by the internet.

Alas, Internet elections are inherently fraught with their own unique problems (as outlined, e.g., here: enterprisenetworkingplanet.com/netsecur/hack-early-hack-often-the-perils-of-electronic-voting.html ).

Re: Value of a life
  • 10/28/2016 11:05:46 AM
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@PChaos: Yeah, but that could backfire just as easily.

"Yeah!  Breast cancer is still the highest-funded cancer on a per-death basis!  We're doing a great job, guys!  We're number one!!!"

(Maybe not worded quite that way, but you get my point.)

Incidentally, I am still smirking over your use of the phrase "their favorite cancers".  Love it!

Re: Value of a life
  • 10/25/2016 9:10:35 AM
NO RATINGS

@PC - If there was public politcal will, you could force those types of choices on to ballots as referendums; this would be easy if elections could be done by the internet. It would be easier to popularize the VSL concept at the local level. To get the House and Senate or a subcommittee thereof to address this, would take some heavy lobbying.

Re: Value of a life
  • 10/24/2016 3:39:53 PM
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@Joe

And since a death by cancer is still a death, to some extent it doesn't matter if it is breast or lung or brain or kidney or prostate cancer.

Therefore, I do believe that federal agencies should consider the VSL as a way of setting and informing the public about research priorities. It's not the only way, but more people should know that their favorite cancers may be relatively overfunded.

Re: Value of a life
  • 10/22/2016 4:14:02 PM
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Breast cancer is only "more important to the public" because it has so many awareness organizations pushing it and giving it good publicity.

Cancer is cancer, though.  (A man who reaches age 70 is all but *guaranteed* to get prostate cancer.)  Breast cancer has excellent one-year and five-year survival rates if found early.  Pancreatic cancer?  Not so much.  And kidney cancer has only an 8% survival rate because it is generally asymptomatic until the late stages.

And what about lung cancer?  We tend to ignore it because we generally see it as the fault of the patient (even if the patient never smoked).

And so on and so on.  Cancer debilitates and kills, whomever has it, wherever they have it.

Re: Loaded questions
  • 10/22/2016 4:06:07 PM
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Depends how it's being used.

Legislatively or regulatory-wise?  In a perfect world, unsure.  But in the real world, bad, because it's based on the same kind of smarmy faulty conclusions as "For 88 cents a day, you can save so-and-so's life, give him clean water to drink, and an education."

Also, even if the original data is good, this kind of thinking is what gives us flawed public policy that leads to compliance headaches for business and an increase in expenses for most citizens and ALL taxpayers -- usually inefficaciously, as well.

Additionally, this type of supposedly data-driven policy also leads to vice taxes -- which I am inherently against regardless of the vice.  (My political stance: Either make it legal, or ban it wholesale -- but if you consider it a social ill, DON'T tax it any more than you would tax anything else.)  Vice taxes lead to government profiting of the very social ills that government supposedly wants us to protect us from -- which leads to perverse incentives (such as subsidies for tobacco farmers).

That said, the use of VSL can be very useful in terms of internal risk management, public-sector or private-sector.

Re: Value of a life
  • 10/22/2016 11:09:40 AM
NO RATINGS

The VSL would seem to be a valid way to determine many governmental projects, and whether they should logically move forward or not or in what direction. But, there will be many who will argue against the validity based on the premises, and many who will not comprehend the value of such statistical analysis and go for their "gut" feelings on any given question.

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