The “value of a life” sounds like an existential question, more suited for philosophers and ethicists than economists. Yet we make economic decisions almost every day that reflect the value we each place on reducing our own risk of dying. We might pay more for safer food, for a house in a safer neighborhood, or for a car with added safety features. We might buy protective sports equipment, hand sanitizer, or face masks. The examples are almost endless, according to Lisa Robinson, senior research scientist and deputy director of the Center for Health Decision Science at the Harvard T.H. Chan School of Public Health. Robinson also directs the Harvard Chan School’s online professional development program, Benefit-Cost Analysis: Valuing Life and Health. That program aids those who conduct these analyses and those who use the results in understanding these methods and their implications.
In benefit-cost analysis, the “value of a life” – or more precisely, the “value per statistical life” (VSL) – refers to these day-to-day tradeoffs, although the language is confusing, Robinson explains. Economists use surveys and other data to estimate the monetary value we each place on small changes in our own risks, then aggregate the results to estimate the expected value of averting future deaths. They use a similar approach to estimate the value of averting nonfatal illnesses and injuries. By doing so, they are able to directly compare the monetary value of these and other benefits against the costs of alternative interventions and policies.
Policymakers and other stakeholders find these comparisons crucial for evidence-based decision-making, as illustrated by the requirements of many government agencies and other organizations. Benefit-cost analysis is often used to evaluate approaches for reducing environmental, transportation, occupational, nutritional, behavioral, and other risks, including climate change. It is applied to interventions that may be financed directly by government programs or other organizations, or that may be funded by imposing costs on industry, households, and other entities through regulations or through taxes and subsidies aimed at changing behavior, Robinson adds.
Why Benefit-Cost Analysis?
Robinson points out that benefit-cost analysis is often used to aid in determining how to best allocate scarce resources – labor, materials, and other things that money can buy – in order to achieve the greatest improvements in health and longevity, as well as welfare more generally. Perhaps most importantly, conducting benefit-cost analysis ensures that the impacts of alternative policies are rigorously investigated. Such exploration is essential to avoid unintended or unexpected consequences.
“A benefit-cost analysis is a way of determining what the impact of a policy would be before it’s enacted,” she says. “It forces us to look more closely at the policy in a systematic way and to ask questions that no one might otherwise think to ask.” We may find information that reveals that the policy won’t be effective, or that it will have far more beneficial effects than anticipated.
The Role of the Value per Statistical Life
When it comes to valuing reduced mortality, Robinson says using value per statistical life (VSL) estimates is most appropriate methodology. “Before implementing a new policy, we don’t know whose life that policy might be saved,” she says. “What we do know is that the policy will reduce the risk of dying among those affected.” For example, reducing air pollution in a large metropolitan area will decrease the mortality risks faced by that population. Requiring back-up cameras in cars will reduce the risks of death among those in their proximity.
Usually, the risk changes associated with these policies are very small on an individual level, around 1 in 10,000 or 1 in 100,000, but the number of deaths averted can be quite large when the policy affects a sizable population. For example, a policy that reduces the annual risk of death by 1 in 10,000 among the 4 million residents of Los Angeles would avert 400 deaths per year.
In the U.S., research on individuals’ willingness to exchange their own money for a change in the risk they would experience suggests that on average a U.S. resident is willing to pay about $1,200 for a 1 in 10,000 reduction in their own risk – or $12,000,000 when converted to a VSL estimate. So preventing those 400 deaths annually would be valued at $4.8 billion in any given year, suggesting that it may be worth investing a substantial amount to achieve these benefits.
Putting VSL in Proper Context
Despite the importance of these estimates, Robinson points out that this concept is often misunderstood. Many incorrectly believe VSL refers to the value of saving an individual’s life—how much their life is deemed to be truly worth in a moral or ethical sense. But in fact it is derived from how much that individual is likely to pay to reduce their own risk of dying by a small amount. Not surprisingly, this willingness to pay likely varies depending on the characteristics of the individual, such as their age and income, as well as the characteristics of the risk, such as whether it is caused by something outside of their own control or whether it involves significant pain and suffering prior to death. Estimating the effects of these factors can be difficult. Nonetheless, Robinson says that getting as close as possible to the appropriate value is essential for informed decisions.
Weighing the Costs and Benefits
This brings Robinson to an example. “Let’s say a government agency is thinking about a new requirement that will cost $400 million per year, and is expected to reduce annual deaths by 200. With a VSL of $12 million, the costs are clearly exceeded by the benefits. But if the costs were instead $4 billion, the policy would no longer be cost-beneficial. By understanding this early in the process, policymakers can consider whether alternative policies are worth pursuing, given the likelihood that the benefits will exceed the costs.
“Remember, if we spend money for one thing, we can’t spend that money on something else,” she says. Therefore, it’s essential that we invest limited resources wisely, weighing the costs and benefits to identify the policies that lead to the greatest improvement in wellbeing.
Harvard T.H. Chan School of Public Health offers Benefit-Cost Analysis: Valuing Life and Health, an online program that teaches the advantages and limitations of this method, and improves your ability to evaluate the results.
Sources:
Robinson, Lisa A. Deputy Director, Center for Health Decision Science, Harvard T.H. Chan School of Public Health, Zoom interview April 2024 and follow-up May 2024.
Rising global temperatures are threatening our health—but there are reasons to be hopeful News. (2023, May 17). http://www.hsph.harvard.edu/news/?p=111354859339