The Value of Risks to Life and Health

Abstract

The 1980s marked the first decade in which use of estimates of the value of life based on risk tradeoffs became widespread throughout the Federal government. Previously, agencies assessed only the lost present value of the earnings of the deceased, leading to dramatic underestimation of the benefit value. In large part through the efforts of the U. S. Office of Management and Budget, agencies such as OSHA and EPA began incorporating value-of-life estimates in their benefit evaluations.55 Policy makers' recognition of the nonpecuniary aspects of life is an important advance. Given the range of uncertainty of the value-of-life estimates, perhaps the most reasonable use of these values in policy contexts is to provide a broad index of the overall desirability of a policy. In practice, value-of-life debates seldom focus on whether the appropriate value of life should be $3 million or $4 million narrow differences that cannot be distinguished based on the accuracy of current estimates and the potential limitations of individual behavior underlying these estimates. However, the estimates do provide guidance as to whether risk reduction efforts that cost $50,000 per life saved or $50 million per life saved are warranted. The threshold for the Office of Management and Budget to be successful in rejecting proposed risk regulations has been in excess of $100 million (see Viscusi 1992a). It is in addressing the most extreme policy errors that the estimates will be most useful, as opposed to pinpointing the value of life that should guide policy decisions. A needed major change is to establish an appropriate schedule of values of life that is pertinent for the differing populations at risk. The quantity of life at risk often varies quite widely, as do individual attitudes toward these risks. Policies that protect groups who incur risks voluntarily should be treated quite differently from policies that protect populations who bear risks involuntarily or who have a very high aversion to incurring health risks. Differences also arise on a temporal dimension. Valuation of health risks to future generations is assuming greater policy importance, but these values will not be the same as for those currently alive.