The Value of a Life

A recent NYTimes article on how to value a life drew almost two-hundred heavy-handed comments. It discussed how different governmental agencies such as the Food and Drug Administration (FDA), the Environmental Protection Agency (EPA) or the Department of Transportation (DoT) place a monetary value on each life saved.

In many public policy areas, Cost-benefit Analysis (CBA) is being used to assess whether an investment in a particular area is worthwhile. CBA uses an “exchange rate” in which the consequences are monetarized.

The article mentioned the following values: The DOT value each life saved at or around $6 million 2010 USD$; $9.1 million 2010 US$ was the corresponding value of the EPA; and the FDA put a figure of $7.9 million 2010 USD$ (increased from $5 million in 2008 USD$) on eachlife saved from cancer death caused by cigarettes.

I did not know that the FDA considered efficiency measures such as money per life saved at all.

What I find fascinating is how arbitrary the approach of the different agencies can be. They could have just funded certain policies by how cheaply they can save a life up to a certain threshold (e.g. when thebudget is exhausted).

Instead, the EPA uses a methodology derived from logging industry (yes, you heard right). $1,000 worth of extra-work for the lumberjacks each year is generally accepted to save 1 in 1,000 lumberjacks. This was apprently developed by a Professor Viscusi who wrote his firstpaper on CBA as an undergrad at Harvard in the 1970s.

Other governmental agencies seem to survey citizens. In economics, this could actually be considered a valid approach if done right.

There were interesting comments by the readers. Some did not want to put any value of life. It was controversial if the value was too high or too low. One reader mentioned that the Federal Aviation Administration might have had a value of $450,000 per life in the late 1970s.I think the article misses a few things:

First, it does not mention that other countries’ “exchange rates” are much lower. A life was valued at £1,312,260 ($2.14 million in today’s exchange rates) in 2003 in the United Kingdom (UK Department for Transport (Highways Economics Note No. 1. 2003 Valuation of the Benefits of Prevention of Road Accidents and Casualties. London: UK Department for Transport, 2004.) and at €2 million ($2.76 mio. in today’s exchange rates) in the France of 2000 (Boiteux and Baumstark 2001).

Second, the article does not mention that there are alternative approaches, which exist, for example, in health economics. Unlike CBA,where costs and consequences have a common denominator, Cost-effectiveness Analysis (CEA) expresses efficiency in a ration (costs are divided by effectiveness, e.g. in life years or quality-adjusted life years). CEA was developed by Milton Weinstein in
the late 1970s at Harvard. Policy makers can compare the relative values of each strategy with alternative health care investments.

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5 replies »

  1. Why did you not add the “value” insurance companies place on fingers, toes, hands, etc. and LIFE, and why is the government the “only” entity determining this? Just go into any courtroom every day and hear what (arbitrary) arguments are taking place on the value of a life. Obviously your own life is priceless and the other guy’s has a limit – especially if you’re paying.

  2. Since a given dollar can only be spent one time and financial resources are finite, it makes sense to try to strike a reasonable balance between costs and benefits of government imposed regulations. However, in trying to quantify the potential benefits of, say, a cleaner environment, we should think not in terms of lives saved but of life YEARS saved. There is a big difference between saving the life of a 70 year old that might die of natural causes in another 10 years vs. a 10 year old who could live another 70 years or more. If we were to value a life year at between $100K and $150K, assuming a life expectancy of 80 years or a bit less, we would implicitly value a life at $8-$12 million.

    In the context of trying to figure out which healthcare services, tests procedures and drugs our insurance should cover and how much is too much to pay for them, I think QALY metrics are a fair way to assess the tradeoffs between costs and benefits.

  3. It seems like given the huge uncertainty and extrapolation involved in such calculations a range from 6 to 9M is not actually that big a range. Any thing they are guessing (like the frequency of car accidents in a future year, or rather, the exact number of accidents and injuries a given model of airbag in a given spectrum of car sizes given at a given unknown range of speeds would prevent).

  4. Yeah. I got a Ford van out of a workers’ comp settlement in the wake of an industrial accident wherein I got my right thumb crushed. LOL, “29% permanent disability in right thumb.”

  5. An interesting topic. Every state’s Bureau of Workman’s Compensation has a monetary value attached to each body part and to the loss of life suffered while on the job. Florida currently has a value of only $150,00.00 for loss of life ( I know in Ohio that a workers permanent partial disability for complete or partial amputations of the hand and fingers is calculated based on the number of digits lost and the remaining functionality of the hand.

    The Federal government seems to place a much higher value for a life, at least theoretically.

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