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The Value of a Statistical Life: [They] Do Not Think It Means What [We] Think It Means*

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The Value of a Statistical Life: [They] Do Not Think It Means What [We] Think It Means* The Value of a Statistical Life: [They] do not think it means what [we] think it means* Trudy Ann Cameron Department of Economics University of Oregon Eugene, OR 97403-1285 [email protected] *This is an expanded version of short article with the same title that I wrote for the November 2008 Newsletter of the Association of Environmental and Resource Economists (AERE). I am grateful to Rob Stavins for encouraging me to expand upon the points made there and to seek a broader audience for these ideas. 1 The Value of a Statistical Life: [They] do not think it means what [we] think it means. Abstract: Within the confines of the discipline of economics, the term “Value of a statistical life” (VSL) is an eminently reasonable label to attach to the concept involved. Outside the discipline, however, this choice of terms has been singularly unhelpful. I inventory a sample of reactions by legislators, journalists, and ordinary people during the most recent dust-up about VSLs following yet another exposé on this subject in the popular press. I contend that there could be a considerable reduction in wasted resources if economists were willing to change their terminology to something less incendiary for the uninitiated, and that this could help to increase the acceptance of benefit-cost analysis as an adjunct to the decision-making process for environmental, health and safety regulations. Historically, within our profession, we have adapted ordinary words to special purposes. A different choice of ordinary words, in this context, would probably be welfare-enhancing. For reasons laid out here, I propose we change our standard unit of measurement and replace the “value of a statistical life” with “willingness to swap alternative goods and services for a microrisk reduction in the chance of sudden death” (in the standard case). Analogous descriptions will be appropriate for other types of risks to life and health. 2 The Value of a Statistical Life: [They] do not think it means what [we] think it means. [Vizzini has just cut the rope that The Dread Pirate Roberts has been climbing.] Vizzini: He didn’t fall? INCONCEIVABLE! Inigo Montoya: You keep using that word. I do not think it means what you think it means. - motion picture The Princess Bride (1987) Introduction A wide variety of policies and regulations are intended to protect human life and health. For benefit-cost analysis of these measures, we must address society’s willingness to pay for a variety of health risk reductions. By convention, economists report estimates of this willingness to pay in terms of a unit called a “statistical life.” Environmental and transportation economists certainly understand the precise definition of this unit as being a cross-sectional aggregate of enough individual tiny fractional risk reductions so that the total risk reduction is 1.0 overall. Other types of economists may be less familiar with this terminology, but they catch on quickly when the Value of a Statistical Life (VSL) is explained as a marginal rate of substitution between mortality risk and money or wealth (i.e. other goods and services). The VSL is a ratio that has the marginal utility of a small reduction in mortality risk, r , in the numerator and the marginal utility for a small change in income, Y , in the denominator: ()()Ur UY. This expression simplifies to Yr, measured in “dollars per unit of risk reduced.” While willingness to pay (WTP) for an incremental risk change will be small, the numerical value of this ratio is very large. For mortality risks, typically the risk of sudden death in the current period, empirical data on the tradeoffs that real people are willing to make put this number somewhere around $7,000,000—to pick a middle-of-the-road estimate. 3 Non-economists, however, can sometimes have a very difficult time making sense of this type of number. The most recent nationwide explosion of indignation over the Value of a Statistical Life (VSL) was detonated by the July 10, 2008 publication of an Associated Press story by Seth Borenstein entitled “An American life worth less today.” This enterprise journalism was an exposé concerning the U.S. EPA’s decision to revise downward its standardized estimate of society’s willingness to pay for aggregate mortality risk reductions from environmental policies (its estimate of “the VSL”) from $7.8 million to $6.9 million. While Borenstein interviewed a number of key experts both inside and outside of the EPA, his description of the issues and the data upon which VSL calculations are based was simplified to the point that readers had to invent their own interpretations. And invent, they did. But I contend that our adherence to the term “value of a statistical life” was as much responsible for the ensuing outrage as Borenstein’s over-simplified description of the EPA decision and the debate that surrounds benefit-cost analysis of policies that reduce risks to our lives and health. In the days following the publication of this article, which was picked up by local newspapers throughout the country, I collected reactions and comments from a variety of sources, including a lot of the reactions from ordinary people on news websites where they could leave their comments. The sentiments aroused can leave no doubt that the consumers of our research need to be steered away from the mistaken impression that know-nothing bureaucrats presume to decide on behalf of society the intrinsic worth of a human being. These comments also reflect the damage to economists’ reputations from misinterpretation of the concept of a VSL. More importantly, however, they suggest the amount of wasted reputational capital and person-hours at various government agencies every time another sensational article about the VSL appears in the press. 4 Assorted public misconceptions about “Value of a Statistical Life” After the AP article was published, attempts at political damage control appeared quickly. The following remarks were attributed to the office of Senator Barbara Boxer (D-CA), published July 11, 2008, the day after the AP article appeared: “The EPA’s decision to reduce the value of a human life when they consider the benefits of new environmental regulations is outrageous and must be reversed.” …“EPA may not think Americans are worth all that much, but the rest of us believe the value of an American life to our families, our communities, our workplaces and our nation is no less than it has ever been. This new math has got to go.” … “If these reports are confirmed, I will be introducing legislation to reverse this unconscionable decision at the earliest opportunity.” 1 A follow-up article (Fahrenthold, 2008) appeared on the front page of the Washington Post about a week later. It contained the following ideas: “Someplace else, people might tell you that human life is priceless. In Washington, the federal government has appraised it like a ‘96 Camaro with bad brakes….” “…the Washington bureaucracy takes on a question usually left to preachers and poets.” “…for the first time, the EPA has used this little-known process to devalue life….” …“By reducing the value of human life, which is really a devious way of cooking the books,…” “…To grasp the mind-bending concept of a Blue Book value on life, government officials say it is important to remember that they are not thinking about anyone specific.…” “…an unlikely academic field has grown up to extrapolate life’s value from the everyday decisions of average Americans.” “…lowering the value of life. In some bureaucratic corners of Washington, it is the kind of phrase that nobody blinks at anymore.” Ordinary people also vented their indignation in a variety of ways, as itemized in the inventory below. 2 It is worth taking a close clinical look at the wide range of objections expressed, so I have organized this sample of comments into rough categories: 1 Naively, I wrote immediately to Senator Boxer’s office using the online link at her official website entitled “Contact me.” I dutifully provided a careful explanation about why this issue was something her office might want to be sure they understood better, before she introduced new legislation. However, after hitting the “send” button, I was informed automatically that since I was not a resident of California, she wouldn’t be paying any attention to my comments. At least I tried. 2 The sources for these quotes are documented more fully at http://www.uoregon.edu/~cameron/WTPM/VSL_confusion.pdf . 5 Outrage/indignation/incredulity: No statistician/politician/bureaucrat can put a value on MY life: “First of all no one and no government organization can decide what a life is truly worth. …” “There is no monetary value on life and anyone who believes or uses it to decide what becomes policy and [what] doesn't is just plain stupid.” “Where in our Constitution does it give our government the ‘right’ to put a dollar value on our lives! That is despicable!” “I don’t care what number a politician attaches to it, a human life is priceless. End of discussion.” “I can’t believe that there is even a study that tries to put a value to human life….” “And by the way—and this has nothing to do w/ any side politically—I have to say that this whole formula, anyhow, is DISGUSTING!!!!!!!!!!!!!!!! This whole idea of a cost per life, w/ life-making decisions being made on a cost, makes me sick!” “The value of life is what your love[d] ones, friends and associates think of you, not some statistic from the EPA. …” “The ultimate capitalist perversion. Putting a monetary value on a human life.
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