The Value of Human Life
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Richárd Adorján THE VALUE OF HUMAN LIFE Development of an exceptional economic issue in Hungary 2 Department of Public Services Tutor: Dr. Ernő Kemenes Richárd Adorján 3 BUDAPEST UNIVERSITY OF ECONOMICS AND PUBLIC ADMINISTRATION PH.D. PROGRAM IN MANAGEMENT THE VALUE OF HUMAN LIFE Development of an exceptional economic issue in Hungary PH.D. DISSERTATION Richárd Adorján Budapest 2004. 4 5 CONTENTS I. INTRODUCTION ........................................................................................................ 9 I.1. The initial problem........................................................................................ 10 I.2. The structure of the dissertation.................................................................. 14 II. COST-BENEFIT ANALYSIS ..................................................................................... 17 II.1. The key points of cost-benefit analysis ...................................................... 18 II.1.1. The most important characteristics of the method.................................. 18 II.1.2. Philosophical issues and other critiques ................................................ 20 II.2. The history of CBA and its use in Hungary .............................................. 22 II.2.1. From the beginning till the Executive Order of President Reagan ........ 22 II.2.2. The role of CBA in Hungary today ......................................................... 22 III. THE HISTORY OF THE ECONOMIC APPROACH TOWARDS VALUING A HUMAN LIFE .................................................................................................................................... 27 III.1. The road to establishing the concept of statistical human life ............... 27 III.2. The most important critique of the concensual method......................... 34 III.3. An attempt to synthesize............................................................................ 36 III.4. Summary of Jones-Lee in the problem of value of human life .............. 39 IV. THE COLOURFUL METHODOLOGY ...................................................................... 43 IV.1. The consumer market approach............................................................... 43 IV.1.1. Investigating the optimal motorway speed ............................................ 44 IV.1.2. Investigating the market of smoke detectors.......................................... 45 IV.1.3. Hedonic models outside labour market ................................................. 47 IV.1.4. The effect of a new information ............................................................. 48 IV.2. Labour market approach .......................................................................... 49 IV.2.1. Description of the method...................................................................... 49 IV.2.2. The earliest important researches ......................................................... 52 IV.2.3. Are workers Bayesian decision makers? ............................................... 55 IV.2.4. Calculations by perceived risk............................................................... 56 IV.2.5. Wage-risk inequilibrium ........................................................................ 57 IV.2.6. The value of life expectancy................................................................... 58 IV.3. The contingent valuation method ............................................................. 59 IV.3.1. Description of the method...................................................................... 59 IV.3.2. The techniques of questioning ............................................................... 61 IV.3.3. Limitations of the CV method ................................................................ 62 IV.3.4. Early contingent valuation researches .................................................. 62 IV.3.5. The most important CV research........................................................... 63 IV.3.6. A comparison of the hedonic price and the contingent valuation method ........................................................................................................................... 66 IV.4. Empirical results of the most important researches ............................... 67 6 V. HYPOTHESES, CONCEPTUALIZATION, OPERACIONALIZATION ........................... 68 V.1. Hypotheses of the research.......................................................................... 68 V.2. Conceptualization and operationalization of the key concepts ............... 71 VI. EMPIRICAL RESEARCHES CONDUCTED IN HUNGARY......................................... 75 VI.1. The research based on hedonic price approach ...................................... 75 VI.1.1. Databases used in the research ............................................................. 75 VI.1.2. The independent variables..................................................................... 76 VI.1.3. Risk variables......................................................................................... 80 VI.1.4. The dependent variable ......................................................................... 81 VI.1.5. The results of regression analysis ......................................................... 82 VI.1.6. Limitations of the method, possible sources of errors........................... 89 VI.1.7. Brief evaluation of the results................................................................ 91 VI.2. Establishment of the research based on the contingent valuation method ............................................................................................................................... 91 VI.2.1. Subjects of the first pilot test.................................................................. 92 VI.2.2. Role of the interviewer and the subsidiary materials used.................... 93 VI.2.3. Experiences of the survey ...................................................................... 95 VI.2.4. The second pilot test ............................................................................ 100 VI.2.5. Lessons of the pilot test........................................................................ 100 VI.2.6. Repeating the test................................................................................. 105 VII. REGULATION IN CASE OF A BOMB ALARM – A THEORETICAL MODEL............ 111 VII.1. Current regulation and law surroundings ........................................... 113 VII.2. An alternative regulation model............................................................ 116 VII.2.1. Bomb alarm versus act of terrorism with explosion........................... 117 VII.2.2. Calculation of the costs of the regulation .......................................... 118 VII.2.3. Calculation of the benefits and the net benefit of the regulation ....... 122 VIII. CLOSING REMARKS......................................................................................... 124 APPENDIX 1.............................................................................................................. 129 APPENDIX 2.............................................................................................................. 130 APPENDIX 3.............................................................................................................. 131 APPENDIX 4.............................................................................................................. 147 APPENDIX 5.............................................................................................................. 150 APPENDIX 6.............................................................................................................. 153 REFERENCES............................................................................................................ 155 7 TABLES Table 1. Implicit value of human life (time period 1974-79, in dollar). 46 Table 2. Explanatory variables that were included in most cases. 77 Table 3. Models of the first round. 83 Table 4. Models of the second round. 85 Table 5. The explanatory variables of Model 2.4. 87 Table 6. Models of the third round. 88 Table 7. Risk evaluation rank order of the respondents. 99 Table 8. The value of human life in our sample of 10 people. 99 Table 9. Distribution of answers given to Question 1 in the pilot questionnaire based on the total sample and the subsample of boys and girls in 2001. 101 Table 10. Results given for the value of statistical human life for each sample based on the answers given to the second question in 2001. 104 Table 11. Distribution of answers given to question 1) in the test questionnaire based on the total sample and the subsample of boys and girls in 2003. 106 Table 12. Results given for the value of statistical human life for each sample based on the answers given to the second question in 2003. 108 Table 13. Hit results of certain expressions in the Internet. 111 FIGURES Figure 1. Subsidiary table for Question 10. 94 Figure 2. Subsidiary table for Question 13. 95 8 ’The world is dangerous, the possibility of an accident lurks in every situation of life, this danger and possibility equivalent to human life. Yes, perhaps this danger gives deeper aim and tension for people. Just think of a human life or the world without the danger of accidents. What an arrogantly self-confident, shamelessly proud and bumptious life it would be! No, the danger of an accident lurks in every moment of you, the objects, the situations, the people, the chemical materials, the static and physical figures