Thursday, October 11, 2012

The value of human life and its policy implications

I have to admit, I don't really know how to calculate the value of a human life for purposes of policy analysis. And yet, the value of a single human life is fundamental to any of the cost-benefit calculations we need to construct optimal public policy.

For example, if I were to ask someone how much they would pay to save the life of someone close to them, the number would be incalculable. How much would you spend to have a parent back, or a spouse, a brother, a daughter? No number is too high - $10 million, $50 million, $1 billion. The number is unreliable and can't really be used for policy purposes. And yet, like I said, some value is necessary, particularly when evaluating environmental or healthcare policy. And the estimation of that value, the assumption if you will, ultimately makes or breaks any policy proposal. In short, the valuation of a human life has massive policy implications.

Fortunately, we don't ask people how much they would pay to save a human life because the numbers would be a) massively overstated when asked to save a close personal acquaintance and b) massively understated when it comes to saving the life of a random stranger. Think about it. If you could save the life of one human being in, say, Pittsburgh, who you'll never get to meet, for $50, would you cut the check? What about $500? Keep in mind. You'll never know or meet this person. What if the person lived in Shanghai? Beirut? Still writing that check? By the way, you should probably be aware that you can already do this. $100 bucks will feed 50 children for a month in Haiti. I'm pretty certain you can literally save someone's life for $50, somewhere in the world. The point of this exercise is not to guilt you into a donation (though if that happened, it wouldn't necessarily be a bad thing). The point of the exercise is to demonstrate how difficult it actually is to put a price on a human life. The EPA currently sets the price of a human life at $9.1 million. I actually think there is some validity in the current methodology, as explained in this NY Times article:

The current rise in the value of life is based on the work of Professor Viscusi, who wrote his first paper on cost-benefit analysis as a Harvard undergraduate in the early 1970s. He won a prize and found a career.
The idea he and others have since developed in a long string of studies is that differences in wages show the value that workers place on avoiding the risk of death. Say that companies must pay lumberjacks an additional $1,000 a year to perform work that generally kills one in 1,000 workers. It follows that most Americans would forgo $1,000 a year to avoid that risk — and that 1,000 Americans will collectively forgo $1 million to avoid the same risk entirely. That number is said to be the “statistical value of life.”
I actually like this method because it uses behavior (revealed preferences) rather than opinion (expressed survey preferences) to ground its findings. But here's the thing - is the value of a human life really $9.1 million? I just don't buy it. To me, it doesn't pass the smell test. I mean, there are probably thousands of things we can do, short of spending $9.1 million dollars, to save one human life. But we don't. Obviously the value we place on an ambiguous human life is substantially less than $9.1 million.

My problem with the $9.1 million number is that it seems so detached from reality. Playing around with the numbers, we could probably justify pretty much any public investment or regulation on those grounds. Want the public to pay to install metal detectors in movie theaters? Require roll cages on SUVs? Criminalize cigarettes? I can't think of a single public policy you couldn't justify on the basis of that $9.1 million number. It is so high it renders itself meaningless. Particularly when, as I pointed out earlier, I doubt the average citizen could honestly be roused to spend $50 to save the life of an anonymous stranger.

Like I said, I really don't know what the correct number should be. I do know it is difficult to execute sound public policy with such a widely inflated valuation. I'm just way to cynical to think that human beings value other human beings in this matter. Hell, we could provide universal healthcare in America and prevent hundreds of thousands of unnecessary, painful deaths each year for much less than $9.1 million per person, but God knows we won't do that - because of "Liberty" or something...

Anyway, since I don't want this post to be massively depressing and cynical, and to prove that there is a tiny, albeit dormant heart in this lumbering, dead soul of mine, here is a link to my charity of choice.

1 comment:

  1. Of course, you can't save a life, only delay a death. So what one really talks about is life-years. That's a more useful metric of value (and one that makes young people's lives more valuable than old people's la panel muerte, though you'd probably have some kind of discount rate making next year more valuable than a year lived in 50 years).

    When I was working on injury prevention policy I'd see some things that didn't pass the sniff test of cost-benefit efficiency. They are mandating dashboard displays to show a camera for when cars back up. Though there are some tragedies each year where people, especially kids, are run over by someone backing their car out, I'm not sure that number is high enough to justify the cost of mandating a $500 (or so...I'm guessing) expense added to every vehicle and the corresponding regressive burden of that kind of cost since the cars wealthier people drive were more likely to already have it.

    Also, the IP community was apparently very concerned about buckets as drowning hazards for small children or something.