Policy Challenges of the Heterogeneity of the Value of Statistical Life

Abstract

article published in economics journalEconomic research has developed estimates of the heterogeneity of the value of statistical life (VSL) on dimensions such as individual age, income, immigrant status, and the nature of the risk exposure. This paper examines the empirical evidence on the heterogeneity of VSL and explores the potential implications for the valuation of regulatory policies. Previously, the U.S. Environmental Protection Agency (EPA) unsuccessfully sought to adopt a simple age discount percentage for VSL based on survey evidence. However, labor market estimates of VSL indicate a pattern that tracks lifetime consumption trajectories, as the VSL rises with age and eventually tapers off but does not plummet with age. The VSL has an income elasticity of at least 0.5. The analysis of age variations in VSL is accompanied by a review of the value of statistical life year (VSLY) approach. The U.S. Department of Transportation recognizes the influence of a positive income elasticity of VSL, and EPA has proposed adopting a 50% cancer premium. Recent studies suggest that the risk of death from terrorist attacks are of particular concern and may merit a substantial premium in benefit assessments. Whether and how such heterogeneity in VSL should be incorporated in regulatory policy evaluations depends in part on the source of the heterogeneity. Some prominent sources of heterogeneity arise from segmented labor markets in which disadvantaged groups face different labor market opportunities. Blacks and Mexican immigrants face quite different labor market offer curves. As a result, influences that are problematic from the standpoint of setting different benefit levels for policy purposes are differences in VSL by race and immigrant status. The paper also examines the EPA’s recent devaluation of life and the Posner–Sunstein proposal to use VSL estimates to set hedonic damages in tort liability cases. As with hedonic damages generally, adoption of their proposal would lead to excessive levels of compensatory damages and would greatly increase damage amounts

Neither fixed nor random: weighted least squares meta‐regression

“…VSL is a key parameter in assessing benefits from health and safety policies and regulations (United States Environmental Protection Agency (EPA), 1997). However, it is widely recognized that VSL is itself dependent on the age and income of the workers investigated (Viscusi and Aldy, 2003;Viscusi, 2011;Doucouliagos et al, 2014). Because data used to estimate the value of a statistical life are often drawn from a given country, region, or group of industries, the underlying average income is likely to vary greatly from one estimate of VSL to the next (Viscusi and Aldy, 2003;Doucouliagos et al, 2014).…”

Priorities for Preventive Action: Explaining Americans’ Divergent Reactions to 100 Public Risks

“…Risks that seem inequitably distributed, that cause intense pain and suffering, or that result from malign actions also tend to provoke special concern (Fischhoff et al. ; Slovic ; Viscusi ). From a practical standpoint, we can combine these attributes into judgments about the degree to which risks are unfair to their victims .…”

Behavioral economics and the value of a statistical life

“…One area of possible future marriage of behavioral economics to VSL estimation concerns well-known results on heterogeneity of VSL by income and demographics (Kniesner, Viscusi, and Ziliak 2010;Viscusi 2010). It may be possible for behavioral economists to identify the underlying psychology of interpersonal differences in VSL, say in the area of sex differences or age differences.…”