On the Definition and Age-Dependency of the Value of a Statistical Life

The value of preventing a fatality or (saving) a statistical life is an important question in health economics as well as environmental economics. This paper adds new insights to several of the issues discussed in the literature. It is shown that the conventional way of measuring the value of a statistical life yields a biased estimate, in general. The major exception is the case where the estimate can be based on an infinitely short drop in the hazard rate. This is so in both life cycle models with and without actuarially fair annuities. Moreover, the claim that there are strong theoretical reasons for believing that the value of statistical life declines with age is shown to be wrong.