uesday, Nov 1.
1. Value of statistical life
Key is 'statistical' life - not any individual or specific life - used frequently (to
estimate damages in court, for example).
Value of statistical life (VSL) reflects value of reduction to risk exposure: reflects
society’s willingness to pay for reduction in risk of mortality due to exposure to
various substances or contaminants.
People voluntarily take on risk every day. It's possible to use this information on
choices and tradeoffs to estimate the risk people take., and therefore to estimate the
value of that risk.
suppose new regulation is expected to result in reduction of risk of death
due to exposure to a particular contaminant of .001 (ie, 1 in a thousand). For an
affected population of 1,000,000, 1,000 lives would be expected to be saved
(1,000/1,000,000 = .001). Suppose people in this population are willing to pay, on
average, $20 for this reduction in risk. Then, $20 x 1,000,000 = $2,000,000 = social
willingness to pay to avoid the risk.
EPA study (1996) estimated value of live saved through its environmental
regulations at $4.8 million per life (with confidence interval of +/- $3.2 million).
How? What is wage difference for risky occupations? Example:
Police officers have a 1 in 10,000 higher
risk of being killed - than general
suppose that police earn $1,000 more than others in comparable
situations except for heightened risk of death - then, $1,000 x 10,000 = $10 million