The value of a statistical life: some clarifications and puzzles
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Cass R. Sunstein
Abstract
Many people have wondered why the US government conducts cost-benefit analysis with close reference to the value of a statistical life (VSL). It is helpful to answer that question by reference to the “Easy Cases,” in which those who benefit from regulatory protection must pay for it. In such cases, WTP is usually the right foundation for VSL, because beneficiaries are hardly helped by being forced to pay for regulatory protection that they believe not to be in their interests. In the Easy Cases, arguments from both welfare and autonomy support the use of WTP and VSL (with potentially important qualifications involving imperfect information and behavioral market failures). The analysis is less straightforward in harder cases, in which beneficiaries do not pay for all of the cost of what they receive (and may pay little of that cost). In such cases, arguments from welfare and autonomy might not lead in any clear direction. In the harder cases, regulation might be justified on welfare grounds even if the cost-benefit analysis (based on VSL) suggests that it is not. In principle, a direct inquiry into welfare (the master concept) would be preferable to use of cost-benefit analysis. In the harder cases, distributional considerations might also count in favor of proceeding (as prioritarianism suggests). But at the current time, direct inquiries into welfare consequences and into distributional effects are challenging in practice, and hence regulators should generally rely on cost-benefit analysis, making welfarist adjustments, or adjustments based on distributional considerations, only in compelling cases.
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The empirical analysis of the distributional effects of regulations remains in its early stages, and hence the discussion here is largely theoretical, with occasional references to the incipient empirical literature.
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Of course it is true that under the simple economic model, with perfect competition and full information, we would expect the market to provide these benefits if those affected are willing to pay the costs. The analysis of Easy Case, as of harder ones, depends on an antecedent judgment that there has been some kind of market failure (perhaps including a “behavioral market failure,” see Sunstein, 2013a).
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See Kling et al. (2011, p. 7): “Because appropriate valuation of reductions in mortality risk generally requires information on how VRR [Value of Risk Reduction] varies among individuals and with risk characteristics, the SAB recommends that EPA orient its approach toward (a) recognizing the conceptually appropriate method to estimate population benefits and (b) developing a set of estimates of VRR for policy-relevant cases characterized by risk and individual characteristics (or a function relating VRR to risk and individual characteristics).”
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There is a question whether a “cancer premium” is justified by the existing literature. For discussion, see US Environmental Protection Agency (2010) and Kling (2011).
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See Kling et al. (2011, p. 8): “The SAB acknowledges that heterogeneity in WTP across types of risks will be more palatable to some audiences than heterogeneity across affected subpopulations. In the past, for example, the Agency has been criticized for considering VRRs that differ by individuals’ age. This is, however, a failure of communication rather than any theoretical ambiguity about whether economics admits for different demands by different types of people. It can be difficult to convey the distinction between the “intrinsic value of different human beings” and the “different WTP of people in different circumstances.” However, this difficulty does not justify using the wrong benefit measure for proposed policies.”
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There are, of course, complex questions about the relationships among rights, wealth, and risk. In one view, these variables cannot be separated from one another, and whether people have a “right” to freedom from certain statistical risks depends on an assessment of the level of resources in the relevant society. In that respect, some analysis of social welfare may be a precondition for any judgment about rights.
This Article has benefited from the author’s experience as Administrator of the White House Office of Information and Regulatory Affairs from 2009 to 2012. Parts of the Essay draw on, but significantly revise, portions of Cass R. Sunstein, Valuing Life: A Plea for Disaggregation, 54 Duke LJ 385 (2004). A version will appear in Cass R. Sunstein, Valuing Life: Humanizing the Regulatory State (University of Chicago Press, 2013). I am grateful to Matthew Adler, Joseph Aldy, Martha Nussbaum, Eric Posner, and Lisa Robinson for valuable comments on a previous draft. Cassie Chambers provided superb research assistance.
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Articles in the same Issue
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- The value of a statistical life: some clarifications and puzzles
Articles in the same Issue
- Masthead
- Masthead
- Regional variation, holdouts, and climate treaty negotiations
- A cost-benefit framework for evaluating conditional cash-transfer programs
- A cost-benefit analysis: implementing temporary disability insurance in Washington State
- Cost-benefit analyses of sprinklers in nursing homes for elderly
- The value of a statistical life: some clarifications and puzzles
