Alternative Approaches to Valuing the Health Impacts of Accidents: Liability Law and Prospective Evaluations
Viscusi, W. Kip
The task of valuing accidental injuries and deaths is intrinsically difficult for two reasons. First, unlike standard consumer commodities, individual health is not traded explicitly on the market. It may be traded implicitly as with wage premiums for risky jobs, but these implicit prices must be estimated statistically. The second problem is that the value one places on any economic commodity depends on the welfare one can derive from it. Since adverse health effects influence the welfare one can obtain from any given level of income, the value of one's health status depends on the context in which such values are calculated. In particular, is one attempting to ascertain the amount a person would pay to prevent the loss of health, the amount he would like to be compensated under an insurance policy if he suffered such a decline in health, or the amount of compensation he would need after an adverse health effect to restore his level of welfare? The answer to each of these questions is quite different. Since the manner in which the health value issue is posed plays a pivotal role in its determination, Section II addresses both the methodological underpinnings of valuing health impacts and the legal principles underlying accident compensation. Sections III and IV analyze the empirical evidence regarding prospective valuations of health risk prevention and ex post compensation for accidents. These health value estimates are quite different. Whether or not the observed disparities are inappropriate is unclear, but both the manner in which compensation issues should be structured and some empirical techniques for assessing the appropriate compensation levels can be reliably indicated.