News: Giving ‘Value of a Statistical Life’ a Firmer Foundation, and a New Name
Posted April 29, 2019
The chair of the Georgia Institute of Technology’s School of Economics has coauthored an upcoming paper pinning down a more precise value for one of the most widely used calculations in federal rulemaking, what is called the “value of a statistical life” (VSL).
While she is at it, Laura Taylor and her coauthors are also working to give the concept a makeover, in hopes that a new name will reduce the headaches, and occasional embarrassing headlines, the callous-sounding name has caused regulators.
“No matter what we call it, the fact remains that the estimates society places on reducing health and mortality risks can be the most important numbers economists provide to federal regulators and policymakers,” said Laura Taylor, professor and Chair of the School of Economics, a unit of the Ivan Allen College of Liberal Arts. “So many policies and regulations are designed to improve human health and safety, and we need to know the benefits of these regulations.”
‘Good News for Federal Agencies’
The VSL (see "Explaining the VSL" below) is used as an estimate of the benefit to be derived from proposed regulations designed to reduce the risk of harm, from highway accidents to pollution. Policymakers weigh the cost of such regulations against the benefits of reducing mortality risks as part of their analysis before making a decision. The VSL provides the foundation for measuring benefits.
In their paper, “Randomized Safety Inspections and Risk Exposure on the Job: Quasi-Experimental Estimates of the Value of a Statistical Life,” being published in a forthcoming issue of the American Economic Journal: Economic Policy, Taylor and her coauthor Jonathan Lee examined 10 years of OSHA factory safety inspections to provide credible evidence for fixing the standardized value of the VSL, used by U.S. federal agencies at somewhere between $8 million and $10 million in 2016 dollars.
Taylor and Lee found that workers at manufacturing plants are willing, on average, to forgo about 35 cents an hour—about $700 a year—to reduce their risk of death from an on-the-job accident by 1 in 10,000.
That translates to a VSL of about $7 million — very close to the $7.4 million in 2006 terms adopted by the EPA. The number increases to about $10 million when considering that workers are willing to give up some wages and additional benefits in order to work in safer conditions, Taylor and Lee found.
”Our estimates of the VRMR are good news for federal agencies like the EPA, Department of Homeland Security and FDA who currently use similar values when conducting benefit/cost analyses of their major regulatory programs,” Taylor said. “Their choice of a central estimate for the VSL has been controversial in the past. Our study would say that they are using the best number based on the available evidence.”
More Work to Do
One limitation of the study is that it focuses on workplace risks which tend to result in accidental deaths, Taylor said. But different kinds of risks may not always translate to the same results.
“The VSL estimates from labor market studies are being applied to evaluate the benefits of reducing terrorism risks and environmental exposure risks. It is clear that folks feel differently about the risk of death from a terrorist attack or from exposure to a toxic pollutant than they do from, say, operating a forklift. We don’t have good evidence on how people value reductions in different kinds of risk.
“We need to do better in measuring values for the risks being addressed by specific policies, and not only looking to labor markets for our estimates,” she said.
Valuing Risk Reduction, Not Lives
Taylor and another group of coauthors also looked at ideas to rebrand “value of a statistical life.”
Despite its name, the VSL does not attempt to put a price on human life. Instead, it simply tries to put a value on reducing risks, reductions that by definition would translate into fewer deaths over time if implemented.
Still, critics often interpret the term as placing a generic value on a single human life, against which the cost of regulations can be judged. It has sometimes even been derided as “bordering on immoral,” as Taylor and her co-authors write in their paper, “What’s in a Name? A Search for Alternatives to ‘VSL’” in the journal Review of Environmental Economics and Policy.
Such confusion is why economists have occasionally suggested changing the term, which was coined in 1968.
Finding an Alternative
In 2016, Taylor – who had earlier been a member of the EPA’s Science Advisory Board – and colleagues from EPA, the U.S. Department of Agriculture, and the University of Wyoming set out to conduct the first effort to develop a new name using a systematic method – focus groups.
The researchers found that focus group participants felt that “using ‘value’ and ‘life’ together provokes a strong emotional response and gives the impression of valuing a specific, individual life.”
The focus groups “further suggested that the terminology would be better if it included words that describe the monetary component, convey the risk’s fatal nature, and indicate that the risk is being reduced, not prevented,” according to the paper.
“Value of improved chance of survival,” or VICS, came out on top from the focus group research. But that term is used in the medical field and other contexts and was judged to be a poor replacement, leaving “value of mortality risk reduction,” or VRMR, as the next-best choice.
The term VRMR has not yet been widely adopted as the paper reporting the focus group results was only published in early 2019. However, the EPA says on its VSL website that it is considering using a variant of the term.
“EPA regulations typically lead to small reductions in mortality risks (ranging up to 1 in 1,000 per year) for large numbers of people,” the agency writes on its website. “A benefit-cost analysis attempts to estimate the total sum of money that a large number of people would be willing to pay to reduce their mortality risks by amounts in this general range. The term ‘value of mortality risk reduction’ conveys this idea more clearly and should reduce the confusion that sometimes arises when discussing the ‘value of statistical lives.’”
Economists calculate the VSL by using various techniques to tease out how much individuals are willing to pay to reduce small risks they face in life. For instance, they might use surveys or analyze consumer behavior to see how much value consumers place on safer cars or better smoke detectors.
The amount economists find people are willing to pay for these risk reductions is then multiplied by a population figure to determine a standard VSL.
For example, imagine economists find that people living in a town of 10,000 residents are willing to pay an average of $120 per year to reduce their risk of death from car accidents in any one year by one in 10,000. This means that collectively, the group of 10,000 people is willing to pay $1,200,000 to reduce the annual chance that one among them would die in a car accident.
Estimates of the VSL used by many federal agencies is about $9 to $10 million in current dollars.
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