W. Kip Viscusi, Pricing Lives
The tradeoff between money and fatality risks, or the value of a statistical life (VSL), establishes the appropriate economic price for reducing fatality risks. Government agencies in the U.S. and in many other countries use the VSL to assign monetary values to the mortality risk reduction benefits associated with proposed new government regulations. The best credible evidence for the VSL is from U.S. labor market studies based on recent fatality rate data, which generate VSL estimates in the $9–$10 million range. However, my analysis of international estimates of VSL indicates that they are influenced by substantial publication biases. As a result, I recommend that other countries use U.S. estimates after appropriate adjustments for international income differences.
Although the policy applications of the VSL have generally been restricted to analyses of prospective regulatory policies other safety efforts, my presentation and forthcoming book also advocate the more general application of VSL statistics to establish efficient levels of safety. Current corporate decisions and many government policies throughout the world exhibit a consistent tendency to undervalue risks. Firms should undertake comprehensive risk analyses and use the VSL to set requisite levels of product safety. Courts and regulatory agencies should expand their use of the VSL to establish penalties and regulatory sanctions that establish more consequential valuations of mortality risks. Broadening the applications of the VSL will establish stronger incentives for safety than will prevail under current practices.