Work: Value of a Statistical Life (VSL)
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Discuss how the concept of VSL might be made more palatable to the general public, and examine the reasons and evidence for making VSL dependent on age
The concept of the Value of a Statistical Life (VSL) has caused a lot of public controversy, first of all because many people dislike the idea of putting a monetary value on life. Secondly, some government agencies have considered, or have already decided to use, a lower VSL for elderly people.
Introduction
This discussion will explain why the concept of the ‘value of a statistical life’ (VSL) is controversial and can be disliked. It will then outline how the measure can be made more acceptable to the general public. Public support for the VSL is important if people are going to both willingly participate in surveys, support tough and often unpopular public policies from which these statistics are based on.
In Defence of the Valuation for a Statistical Life
If life is seen as ‘sacred’ then it can be seen as having infinite worth. Therefore, it would not be possible for society to attempt to put a value on it. However, VSL is not putting a value on people’s lives. Economists aim to measure the value for “the prevention of a statistical fatality" (Covey et. al. 2009:86). A technique, called contingent valuation, can be used to elicit willingness to pay for a safety plan for example. It can help find out an individual’s ‘monetary value for safety’; which is contingent or dependent upon an improvement in safety. This ‘improvement’ can be carefully specified to an individual as part of a questionnaire. People can be asked to provide useful monetary values for proposed government safety programmes (Mitchell and Carson 1989).
To make the ‘value for safety’ acceptable it is important that monetary amounts are based on improvements, such as upgrading roads to save lives. It is controversial, and could be seen as unpalatable, for individuals to be asked how much risk, or less safety, they would be willing to accept. In other words, how much compensation they would be willing to receive to tolerate an additional level of risk. This is contentious, as people may not want to endure additional risk. Therefore, in terms of acceptability economists should concentrate on valuing improvements and improved safety. Economists are interested in measuring demand. In practical terms this is “the largest monetary amount” that an individual is willing to pay for a specific improvement in safety; with safety encompassing the ability to save lives (Latouche et. al. 1998:349).
Three more points can be made about making the approach acceptable. Firstly, public goods, such as government safety programmes, do not have a price on them. It is not possible for individuals to buy a road scheme individually. The government has to provide this on a collective or societal basis. Economists can therefore justify their approach, to the public, by suggesting that the government needs to know how much spending to devote to a safety programme. Without a questionnaire, or labour market approach, then it is unclear how much money should be allocated to a safety initiative. This lack of clarity could lead to a poor distribution of resources. Secondly, members of the general public need to be aware that economic resources are scarce. The government, like an individual household, has a finite income and therefore a limited amount of money to spend on safety. The government needs to know how to allocate its limited resources between different safety programmes. A valuation, on the prevention of a statistical fatality, provides useful data to the government in this regard. Thirdly, economists could encourage public acceptability by avoiding controversy when conducting survey research. It could be wise to avoid issues related to blame. Arguably, ‘blame’ “should not count in the allocation of scarce healthcare resources” (Covey et. al. 2009:107).
Economists have also studied labour choices to elicit the valuation of a statistical life. The number of studies which have traded-off risk, against wages, provides legitimacy to this approach (Miller 2000:176). Such legitimacy, through a well-tried technique, could increase the method’s acceptability with the public.
Adjusting the Value of Statistical Life for Age
The valuation of statistical life can be adjusted for age. The reason for giving a lower VSL for elderly people is that, arguably, the VSL figure should be based on “people’s willingness to pay” and how this “varies with age” (Aldy and Viscusi 2007:19). If people are willing to pay more money, to prevent risks to younger people, then there is a justification for having a higher VSL for younger people. Research methods on rationing, in health economics, have become influential in trying to improve the VSL figure; to make it more useful for policymakers (Kenkel 2006). Health economists have argued that death at 25 should be viewed differently from death at say 75 (Williams 1997). On this basis, the VSL should be higher for a 25 year old than a 75 year old. There is a greater benefit to prevent a fatality at age 25 than a similar fatality at age 75.
Arguably, everybody is entitled to a ‘normal’ span of health or life (Williams 1997). “There is either an inverted U-shaped relationship between the value of statistical life and age” (Aldy and Viscusi 2007:2). American research suggests that “VSL rises from $3.7 million (ages 18-24), to $9.7 million (35-44), and declines to $3.4 million (55-62)” (Aldy and Viscusi 2007a:2). Also, more money could be devoted to avoiding death amongst say university graduates; who might, for example, become surgeons and help save many other lives. This would be another justification for a higher VSL for the young and, by implication, a lower VSL for the elderly.
Conclusion
Economists can defend their work. It can “facilitate better prioritisation of risk reduction efforts for populations of various ages” (Aldy and Viscusi 2007:19). However, it is possible that some social groups will not accept economic measures under any circumstances. A road widening scheme could save human lives. Nevertheless, such a scheme could be criticised for killing wildlife and damaging natural habitats. Economists could still defend the VSL by arguing that the more accurate the figure, the more it maximises the allocation of resources within a society. More resources could then be allocated to other areas that society values, such as wildlife schemes. As the famous philosopher Jeremy Bentham stated, “it is the greatest happiness of the greatest number that is the measure of right and wrong” (Bentham, 1776). Adjusting the VSL for age justifies spending more money on risk reduction for a younger individual because they have more to lose through death at an earlier age. By implication, this would lower the VSL figure, for elderly people, as stated in the question.
References
Aldy, J. and Viscusi, W.K. (2007), Age Differences in the Value of Statistical Life, Discussion Paper, Resources for the Future
Aldy, J. and Viscusi, W.K. (2007a), Adjusting the Value of a Statistical Life for Age and Cohort Effects, Vanderbilt University Law School of Law and Economics
Working Paper Number 08-01, available at, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=898189
Bentham, Jeremy (1776). A Fragment on Government. London., Preface (2nd para.).
Covey, J., Robinson, A., Jones-Lee M. and Loomes G. (2009), Responsibility, scale and the valuation of rail safety, Journal of Risk and Uncertainty, 40:85–108
Kenkel, D. (2006), WTP- and QALY-Based Approaches to Valuing Health for Policy:Common Ground and Disputed Territory, Environmental & Resource Economics, Volume 34, Page 419–437
Latouche K. Rainelli P., Vermersch D. (1998), Food safety issues and the BSE scare: some lessons from the French case, Food Policy, Vol. 23. No. 5, p. 347-356
Miller T. (2000), Variations between Countries in Values of Statistical Life, Journal of Transport Economics and Policy, Volume 34, Part 2, May 2000, pp. 169-188
Mitchell R. and Carson R. (1989) Using surveys to value public goods: the contingent valuation method, Resources for the Future, Washington
Williams, A. (1997), Intergenerational Equity: An Exploration of the Fair Innings Argument