Foundations and Trends® in Microeconomics > Vol 6 > Issue 2

Policy Challenges of the Heterogeneity of the Value of Statistical Life

W. Kip Viscusi, University Distinguished Professor of Law, Economics, and Management, Vanderbilt University Law School, USA, kip.viscusi@vanderbilt.edu
 
Suggested Citation
W. Kip Viscusi (2011), "Policy Challenges of the Heterogeneity of the Value of Statistical Life", Foundations and Trends® in Microeconomics: Vol. 6: No. 2, pp 99-172. http://dx.doi.org/10.1561/0700000011

Published: 22 Jul 2011
© 2011 W. K. Viscusi
 
Subjects
Labor Economics,  Microeconometrics
 
Keywords
J17 Value of LifeI18 Government PolicyRegulationPublic HealthH40 Publicly Provided GoodsK32 EnvironmentalHealthSafety Law
Value of statistical lifeRiskRegulationHedonic damagesLabor economicsPublic policyEconometrics
 

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In this article:
1 Introduction
2 Calculating the Value of Statistical Life (VSL)
3 Heterogeneity of VSL Based on the Risk Level
4 Segmented Labor Markets
5 Heterogeneity Based on Age
6 Value of a Statistical Life Year (VSLY)
7 Income Effects
8 The Advent of Using VSL in the Policy Arena
9 The "Senior Discount" Controversy
10 Should Income Levels Matter?
11 The Devaluation of Life Controversy
12 Adjustments for the Size of Risk
13 Latency and Cancer Benefit Issues
14 Dread and Contextual Sources of Variation in Valuing Life: Deaths from Attacks by Terrorists
15 Should the VSL Be Added to the Present Value of Economic Damages?
16 Conclusion
References

Abstract

Economic 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.

DOI:10.1561/0700000011
ISBN: 978-1-60198-476-0
80 pp. $65.00
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ISBN: 978-1-60198-477-7
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Table of contents:
1. Introduction
2. Calculating the Value of Statistical Life
3. Heterogeneity of VSL Based on the Risk Level
4. Segmented Labor Markets
5. Heterogeneity Based on Age
6. Value of a Statistical Life Year (VSLY)
7. Income Effects
8. The Advent of Using VSL in the Policy Arena
9. The "Senior Discount" Controversy
10. Should Income Levels Matter?
11. The Devaluation of Life Controversy
12. Adjustments for the Size of Risk
13. Latency and Cancer Benefit Issues
14. Dread and Contextual Sources of Variation in Valuing Life: Deaths from Attacks by Terrorists
15. Should the VSL Be Added to the Present Value of Economic Damages?
16. Conclusion

Policy Challenges of the Heterogeneity of the Value of Statistical Life

Policy Challenges of the Heterogeneity of the Value of Statistical Life focuses on the variation in VSL both across different studies in the academic literature and in different policy contexts. These differences often reflect quite legitimate heterogeneity in the valuation of risk. This review of the academic literature is coupled with an examination of the policy arena's use of the VSL methodology. Government agencies adopted the VSL approach to valuing risk regulations almost three decades ago. As government agencies continue to refine their benefit assessment procedure, the potential role of heterogeneity of VSL has moved to the forefront of these debates. Sections II through IV review various analytical underpinnings of the VSL methodology, particularly focusing on labor market estimates. Subsequent sections consider different sources of heterogeneity, how these sources should influence benefit assessments, and how they have been used in actual policy contexts.

 
MIC-011