What Is a Life Worth? Robustness of VSL Values from Contingent Valuation Surveys

The value of a statistical life (VSL) is a key input for estimating the benefits of policies that save lives. Several recent studies have obtained estimates of the VSL from contingent valuation surveys, i.e., by asking people to say how much they would pay to reduce their risk of dying. This article examines statistical factors that may influence the estimates of the VSL obtained from such surveys. We examine the importance of distributional assumptions, the choice of the welfare statistics of interest, the procedure for computing them, outliers, undesirable response effects, and internal validity of the willingness-to-pay (WTP) responses. We illustrate the importance of these factors using dichotomous-choice and open-ended WTP data from four recent contingent valuation surveys.     

Valuing mortality risk reductions from environmental, transport, and health policies: a global meta-analysis of stated preference studies

We conduct, to our knowledge, the first global meta-analysis (MA) of stated preference (SP) surveys of mortality risk valuation. The surveys ask adults their willingness to pay (WTP) for small reductions in mortality risks, deriving estimates of the sample mean value of statistical life (VSL) for environmental, health, and transport policies. We explain the variation in VSL estimates by differences in the characteristics of the SP methodologies applied, the population affected, and the characteristics of the mortality risks valued, including the magnitude of the risk change. The mean (median) VSL in our full data set of VSL sample means was found to be around $7.4 million (2.4 million) (2005 U.S. dollars). The most important variables explaining the variation in VSL are gross domestic product (GDP) per capita and the magnitude of the risk change valued. According to theory, however, VSL should be independent of the risk change. We discuss and test a range of quality screening criteria in order to investigate the effect of limiting the MA to high-quality studies. When limiting the MA to studies that find statistically significant differences in WTP using external or internal scope tests (without requiring strict proportionality), we find that mean VSL from studies that pass both tests tend to be less sensitive to the magnitude of the risk change. Mean VSL also tends to decrease when stricter screening criteria are applied. For many of our screened models, we find a VSL income elasticity of 0.7-0.9, which is reduced to 0.3-0.4 for some subsets of the data that satisfy scope tests or use the same high-quality survey.     

Altruistic Preferences for Life-Saving Public Programs: Do Baseline Risks Matter?

Cost-benefit analyses of life-saving public programs typically focus on the number of expected deaths avoided (statistical lives saved) as the metric for evaluating benefits. Although this measure of population risk is clearly important, it ignores the distribution of underlying individual risks. A similar number of lives can be saved by protecting relatively large populations with relatively low baseline risk as can be saved by protecting smaller populations faced with higher baseline risks. Should the value of saving a statistical life be sensitive to the baseline levels of risk to exposed individuals? This paper addresses this issue by focusing specifically on individuals’ altruistic values with regard to life-saving programs. Using results from a survey, this study finds that when individuals are asked to state their preference for equally costly life-saving programs that will only affect others’ level of risk, they prefer those that save more lives. More importantly, however, controlling for the number of lives saved, they also prefer programs that affect smaller populations facing higher levels of baseline risk. Furthermore, the results suggest that each order-of-magnitude increase in the level of baseline risk to others approximately doubles the altruistic value component of a statistical life saved.     

Provision of a Wildfire Risk Map: Informing Residents in the Wildland Urban Interface

Wildfires in the wildland urban interface (WUI) are an increasing concern throughout the western United States and elsewhere. WUI communities continue to grow and thus increase the wildfire risk to human lives and property. Information such as a wildfire risk map can inform WUI residents of potential risks and may help to efficiently sort mitigation efforts. This study uses the survey-based contingent valuation (CV) method to examine annual household willingness to pay (WTP) for the provision of a wildfire risk map. Data were collected through a mail survey of the East Mountain WUI area in the State of New Mexico (USA). The integrated empirical approach includes a system of equations that involves joint estimation of WTP values, along with measures of a respondent's risk perception and risk mitigation behavior. The median estimated WTP is around U.S. $12 for the annual wildfire risk map, which covers at least the costs of producing and distributing available risk information. Further, providing a wildfire risk map can help address policy goals emphasizing information gathering and sharing among stakeholders to mitigate the effects of wildfires.     

Behavioral Economics and Regulatory Analysis

Behavioral economics has captured the interest of scholars and the general public by demonstrating ways in which individuals make decisions that appear irrational. While increasing attention is being focused on the implications of this research for the design of risk‐reducing policies, less attention has been paid to how it affects the economic valuation of policy consequences. This article considers the latter issue, reviewing the behavioral economics literature and discussing its implications for the conduct of benefit‐cost analysis, particularly in the context of environmental, health, and safety regulations. We explore three concerns: using estimates of willingness to pay or willingness to accept compensation for valuation, considering the psychological aspects of risk when valuing mortality‐risk reductions, and discounting future consequences. In each case, we take the perspective that analysts should avoid making judgments about whether values are “rational” or “irrational.” Instead, they should make every effort to rely on well‐designed studies, using ranges, sensitivity analysis, or probabilistic modeling to reflect uncertainty. More generally, behavioral research has led some to argue for a more paternalistic approach to policy analysis. We argue instead for continued focus on describing the preferences of those affected, while working to ensure that these preferences are based on knowledge and careful reflection.     

Premature Deaths,Statistical Lives,and Years of Life Lost: Identification,Quantification, and Valuation of Mortality Risks

Mortality effects of exposure to air pollution and other environmental hazards are often described by the estimated number of “premature” or “attributable” deaths and the economic value of a reduction in exposure as the product of an estimate of “statistical lives saved” and a “value per statistical life.” These terms can be misleading because the number of deaths advanced by exposure cannot be determined from mortality data alone, whether from epidemiology or randomized trials (it is not statistically identified). The fraction of deaths “attributed” to exposure is conventionally derived as the hazard fraction (R – 1)/R, where R is the relative risk of mortality between high and low exposure levels. The fraction of deaths advanced by exposure (the “etiologic” fraction) can be substantially larger or smaller: it can be as large as one and as small as 1/e (≈0.37) times the hazard fraction (if the association is causal and zero otherwise). Recent literature reveals misunderstanding about these concepts. Total life years lost in a population due to exposure can be estimated but cannot be disaggregated by age or cause of death. Economic valuation of a change in exposure-related mortality risk to a population is not affected by inability to know the fraction of deaths that are etiologic. When individuals facing larger or smaller changes in mortality risk cannot be identified, the mean change in population hazard is sufficient for valuation; otherwise, the economic value can depend on the distribution of risk reductions.     

Should Cities Invest in Sheltering‐in‐Place Measures Against Chlorine Truck Attacks by Terrorists?

After an intentional release of chlorine in an office district, public responses such as sheltering‐in‐place could save many lives if rapid enough. However, previous work does not estimate how fast and effective such responses would be for several possible investments in attack detection, public alert, and building ventilation, nor whether such measures would be cost effective. We estimate public response times with investment options in place, and resulting changes in fatalities as well as system costs, including false alarm costs, and cost effectiveness in terms of cost per net death avoided. The measures do have life‐saving potential, especially if all response times are at or near the lower limits of the ranges assumed in this article. However, due to uncertainties, it is not clear that responses would be rapid enough to save many people. In some cases total fatalities would increase, since sheltering after chlorine vapor has already entered buildings can increase occupants’ chlorine exposure. None of the options considered have median cost per statistical life saved meeting a cost‐effectiveness threshold of $6.5 million across all of the chlorine exposure dose‐response and ingress‐delay models considered here, even if there were one attack per year in the area covered by the system. Given these and other issues discussed in this article, at this point investments to improve sheltering‐in‐place capability appear not to be robust strategies for reducing fatalities from chlorine attack in an office district.     

Comparing Expressed and Revealed Preferences for Risk Reduction: Different Hazards and Question Frames

Studies often note the wide differences that exist in costs per death avoided across U.S. federal programs and regulatory contexts. This paper explores two new, related explanations for these differences. First, it argues that the patterns of revealed preferences (public allocations) may be related to public values, which are measured here through subjects' expressed preference responses to a contingent valuation survey regarding risk reduction. Subjects' expressed values are compared to actual (and proposed) costs of safety regulations for a similar set of hazards. We discover strong congruence in the ranking of expressed values and actual values. Second, the paper presents the results of a subsequent survey that investigates why the patterns observed in the first survey might occur. It suggests that one reason for the observed similarities between revealed and expressed preferences may be in how choices are framed. The paper hypothesizes that both subjects and decision makers may frame valuation decisions in the same way: as percentage changes from the reference point provided by the base rate of deaths for that hazard.     

REDUCTION IN THE LONG‐TERM UNEMPLOYMENT OF THE ELDERLY: A SUCCESS STORY FROM FINLAND

In several European countries the elderly unemployed are allowed to collect unemployment benefits up to a certain age limit, after which they can retire via some early retirement scheme. In Finland the eligibility age of persons benefiting from this kind of scheme was raised from 53 to 55 in 1997. We consider layoff risks, unemployment durations, and the exit states before and after the reform. Since the reform the group aged 53–54 has had a lower risk of unemployment, shorter unemployment durations, and higher exit rates to employment, and it is almost indistinguishable from the group aged 50–52. We estimate that the amount of unemployment benefits saved due to the reform is close to $100 million for each age cohort turning 53. (JEL: J64, J26, C14, C41)     

ON THE RELATIVE EFFICIENCY OF PERFORMANCE PAY AND NONCONTINGENT INCENTIVES

We report evidence from a large field experiment that compares the effectiveness of contingent and noncontingent incentives in eliciting costly effort for a large range of payment levels. The company with which we worked sent 7,250 letters asking customers to complete a survey. Some letters promised to pay amounts ranging from $1 to $30 upon compliance (contingent incentives), whereas others already contained the money in the request envelopes (noncontingent incentives). Compared to no payment, very small contingent payments lower the response rate while small noncontingent payments raise the response rate. As expected, response rates rise with the size of the incentive offered. The response rate in the noncontingent incentives rises more rapidly for low amounts of incentive, but then flattens out and reaches lower levels than under contingent payments. We discuss how the optimal policy regarding the use of each size and type of incentives crucially depends on firms’ objectives.     

Risk Perception and the Value of Safety

This paper examines the relationship between perceived risk and willingness-to-pay (WTP) for increased safety from technological hazards in both conceptual and empirical terms. A conceptual model is developed in which a given household's WTP for risk reductions is a function of traditional socioeconomic variables (i.e., income and base level of risk) and perceived characteristics of the hazards (i.e., dread, knowledge, and exposure). Data to estimate the model are obtained through a combined contingent valuation and risk perception survey that considers 10 technological hazards, five of which are well-defined (e.g., death rates are known and the risks are relatively common) and five are less well-defined. Econometric results, using TOBIT estimation procedures, support the importance of both types of variables in explaining WTP across all 10 hazards. When the risks are split into two groups, the results show that WTP for well-defined hazards is most influenced by perceived personal exposure, while WTP for less well-defined risks is most influenced by levels of dread and severity.     

All The Same? On a Certain Pattern in Cross-National Death Risk

This article considers whether a nation that fares relatively well (or badly) on a particular dimension of mortality risk tends also to do so on others. Working with 2016 data from the Global Burden of Disease (GBD) Study, we focus on six causes of premature death: transport accidents, other accidents, homicide, early-childhood diseases, and both communicable and noncommunicable diseases beyond early childhood. We consider data from all 26 nations that had populations of at least 50 million in 2016, as well as 15 clusters of smaller nations that are similar in longevity (e.g., Scandinavia). We use an analytic method that facilitates useful comparisons across nations, for it recognizes that some potential death risks can be underestimated because citizens die sooner from other causes. We estimate reductions in lifespan from each of the six causes relative to natural lifespan as defined by GBD. It emerges that, for all 15 pairings among the six causes, these reductions are positively correlated. We introduce metrics to summarize a nation's overall “safety status,” and find that losses of longevity because of premature deaths are nearly three decades fewer in the safest countries than in the least safe ones. Turning to possible explanations for the cross-national differences, we find a strong association between a nation's safety status and both its economic wherewithal as indicated by the 2016 GDP per capita (adjusted for purchasing power parity) and its income inequality as reflected by its Gini coefficient.     

Can Property Values Capture Changes in Environmental Health Risks? Evidence from a Stated Preference Study in Italy and the United Kingdom

Hedonic models are a common nonmarket valuation technique, but, in practice, results can be affected by omitted variables and whether homebuyers respond to the assumed environmental measure. We undertake an alternative stated preference approach that circumvents these issues. We examine how homeowners in the United Kingdom and Italy value mortality risk reductions by asking them to choose among hypothetical variants of their home that differ in terms of mortality risks from air pollution and price. We find that Italian homeowners hold a value of a statistical life (VSL) of €6.4 million, but U.K. homeowners hold a much lower VSL (€2.1 million). This may be because respondents in the United Kingdom do not perceive air pollution where they live to be as threatening, and actually live in cities with relatively low air pollution. Italian homeowners value a reduction in the risk of dying from cancer more than from other causes, but U.K. respondents do not hold such a premium. Lastly, respondents who face higher baseline risks, due to greater air pollution where they live, hold a higher VSL, particularly in the United Kingdom. In both countries, the VSL is twice as large among individuals who perceive air pollution where they live as high.     

Terrorism Risks and Cost‐Benefit Analysis of Aviation Security

We evaluate, for the U.S. case, the costs and benefits of three security measures designed to reduce the likelihood of a direct replication of the 9/11 terrorist attacks. To do so, we assess risk reduction, losses, and security costs in the context of the full set of security layers. The three measures evaluated are installed physical secondary barriers (IPSB) to restrict access to the hardened cockpit door during door transitions, the Federal Air Marshal Service (FAMS), and the Federal Flight Deck Officer (FFDO) Program. In the process, we examine an alternate policy measure: doubling the budget of the FFDO program to $44 million per year, installing IPSBs in all U.S. aircraft at a cost of $13.5 million per year, and reducing funding for FAMS by 75% to $300 million per year. A break‐even cost‐benefit analysis then finds the minimum probability of an otherwise successful attack required for the benefit of each security measures to equal its cost. We find that the IPSB is costeffective if the annual attack probability of an otherwise successful attack exceeds 0.5% or one attack every 200 years. The FFDO program is costeffective if the annual attack probability exceeds 2%. On the other hand, more than two otherwise successful attacks per year are required for FAMS to be costeffective. A policy that includes IPSBs, an increased budget for FFDOs, and a reduced budget for FAMS may be a viable policy alternative, potentially saving hundreds of millions of dollars per year with consequences for security that are, at most, negligible.     

Advance Selling by a Newsvendor Retailer

Retailers often face a newsvendor problem. Advance selling helps retailers to reduce demand uncertainty. Consumers, however, may prefer not to purchase in advance unless given a discount because they are uncertain about their valuation for the product in advance. It is then unclear whether or when advance selling to pass some uncertainty risk to consumers is optimal for the retailer. This paper examines the advance selling price and inventory decisions in a two‐period setting, where the first period is the advance selling period and the second is the selling (and consumption) period. We find that an advance selling strategy is not always optimal, but is contingent on parameters of the market (e.g., market potential and uncertainty) and the consumers (e.g., valuation, risk aversion, and heterogeneity). For example, we find that retailers should sell in advance if the consumers' expected valuation exceeds consumers' expected surplus when not buying early by a certain threshold. This threshold increases with the degree of risk aversion but decreases with stock out risk. If the degree of risk aversion varies across consumers, then a retailer should sell in advance if the probability for a consumer to spot buy is less than a critical fractile.     

Value of a Life: What Difference Does It Make?1

A comparison of the costs and benefits of 57 lifesaving programs reveals striking disparities across agencies and programs in cost/life saved and even greater disparities in cost/life-year saved. Within a broad range the monetary value assigned to the benefits of averting a death usually does not alter the policy implications of the analyses. The findings suggest that despite the substantial disagreements and uncertainties in the theory and practice of valuing lives, careful quantitative analysis can be helpful in setting health, safety, and environmental priorities.     

Health care costs tied to many issues

Although, in 1990, the United States spent about $750 billion (12.2 percent of the Gross National Product) on health care, 31-37 million people in this country are uninsured. Another 4 million people are thought to be underinsured. We have one of the highest infant mortality rates among developed industrialized nations and rank 19th in health care and well-being among those nations. Our life expectancy is lower than those of some third-world countries. The United States and South Africa are the only two industrialized nations without a national health care policy. In spite of these statistics, U.S. health care costs continue to rise and, by the year 2000, are expected to reach $1.5 trillion (15 to 17.5 percent of the GNP. Per capita spending on health care will reach $5,515 by the year 2000, compared with $2,425 in 1990 and $1,016 in 1980.     

The Future of Nuclear Power: Value Orientations and Risk Perception

Since the turn of the 21st century, there has been a revival of interest in nuclear power. Two decades ago, the expansion of nuclear power in the United States was halted by widespread public opposition as well as rising costs and less than projected increases in demand for electricity. Can the renewed enthusiasm for nuclear power overcome its history of public resistance that has persisted for decades? We propose that attitudes toward nuclear power are a function of perceived risk, and that both attitudes and risk perceptions are a function of values, beliefs, and trust in the institutions that influence nuclear policy. Applying structural equation models to data from a U.S. national survey, we find that increased trust in the nuclear governance institutions reduces perceived risk of nuclear power and together higher trust and lower risk perceptions predict positive attitudes toward nuclear power. Trust in environmental institutions and perceived risks from global environmental problems do not predict attitudes toward nuclear power. Values do predict attitudes: individuals with traditional values have greater support for, while those with altruistic values have greater opposition to, nuclear power. Nuclear attitudes do not vary by gender, age, education, income, or political orientation, though nonwhites are more supportive than whites. These findings are consistent with, and provide an explanation for, a long series of public opinion polls showing public ambivalence toward nuclear power that persists even in the face of renewed interest for nuclear power in policy circles.     

Estimating the National Public Health Burden Associated with Exposure to Ambient PM2.5 and Ozone

Ground‐level ozone (O₃) and fine particulate matter (PM_2.5) are associated with increased risk of mortality. We quantify the burden of modeled 2005 concentrations of O₃ and PM_2.5 on health in the United States. We use the photochemical Community Multiscale Air Quality (CMAQ) model in conjunction with ambient monitored data to create fused surfaces of summer season average 8‐hour ozone and annual mean PM_2.5 levels at a 12 km grid resolution across the continental United States. Employing spatially resolved demographic and concentration data, we assess the spatial and age distribution of air‐pollution‐related mortality and morbidity. For both PM_2.5 and O₃ we also estimate: the percentage of total deaths due to each pollutant; the reduction in life years and life expectancy; and the deaths avoided according to hypothetical air quality improvements. Using PM_2.5 and O₃ mortality risk coefficients drawn from the long‐term American Cancer Society (ACS) cohort study and National Mortality and Morbidity Air Pollution Study (NMMAPS), respectively, we estimate 130,000 PM_2.5‐related deaths and 4,700 ozone‐related deaths to result from 2005 air quality levels. Among populations aged 65–99, we estimate nearly 1.1 million life years lost from PM_2.5 exposure and approximately 36,000 life years lost from ozone exposure. Among the 10 most populous counties, the percentage of deaths attributable to PM_2.5 and ozone ranges from 3.5% in San Jose to 10% in Los Angeles. These results show that despite significant improvements in air quality in recent decades, recent levels of PM_2.5 and ozone still pose a nontrivial risk to public health.