The Benefits of Mortality Risk Reduction: Happiness Surveys vs. the Value of a Statistical Life

By Viscusi, W. Kip | Duke Law Journal, May 2013 | Go to article overview

The Benefits of Mortality Risk Reduction: Happiness Surveys vs. the Value of a Statistical Life


Viscusi, W. Kip, Duke Law Journal


A principal component of many benefit-cost analyses (BCAs) of health, safety, and environmental regulations is the valuation of the fatality risk effects of the underlying policy. Government agencies currently value these expected effects using estimates of the value of a statistical life (VSL), that is, the tradeoff rate between money and very small risks of death. This measure corresponds to BCA's theoretically appropriate benefits measure, which is society's willingness to pay for the risk reduction. Here, I will review the VSL approach, compare it to suggested alternatives that use happiness measures of well-being, and address some of the misunderstandings that may be contributing to some researchers' advocacy for the use of happiness scores for policy valuation. The VSL serves as a focal point of the well-being analysis by Professors John Bronsteen, Christopher Buccafusco, and Jonathan Masur (Bronsteen et al.). (1) As VSL is the fatality risks-benefits measure conventionally used in BCA, it also generally serves as a principal reference point for guiding public-policy valuations, which are the focus of Professor Matthew Adler's article. (2)

A common approach to estimating VSL is the use of wage premiums that workers receive for occupational fatality risks. (3) It is instructive to start with the theoretical underpinnings of VSL in this context, which in turn indicate the nature of the relationship of the components of the VSL calculation to individual utility. The empirical estimate of VSL based on wage-risk tradeoffs is the difference between one's utility when alive and when dead, divided by the expected marginal utility of income. (4) Thus, a key building block of the formula is a measure of how great one's utility, or well-being, is when alive as compared to how great one's utility is when deceased, which also might be thought of as one's bequest. The utility functions in this analysis are von Neumann-Morgenstern utility functions that are conditional on health status and are generally defined only up to a positive linear transformation. (5) Adding a constant to the utility functions or multiplying the utility functions by a positive constant does not alter their structure, but it does affect their level. To give the difference in utility functions cardinal significance, the formula for VSL divides the difference in utilities by the expected marginal utility of income, which serves to normalize the units of the utility-difference expression. As a consequence of this mathematical structure, VSL serves as a cardinal measure of preferences with respect to fatality risks. For small changes in the risk of death, VSL is a measure of both the worker's willingness-to-pay value for reduced risk and willingness-to-accept value for increased risk. Government agencies have used the individual valuations of risk implied by estimates of VSL to value society's willingness to pay for the risk reduction. (6)

Although happiness scores elicited in surveys are not tantamount to utility levels, many researchers have advocated them as measures of well-being. However, unlike the VSL formulation, well-being measures have no explicit economic content and no cardinal significance. A representative well-being survey question asks the respondent to rate his or her happiness or satisfaction with life on a numerical scale such as 0 to 10, 1 to 10, or 1 to 7. (7) At a most fundamental level, how should a person even think about such a question? What is the reference point for such an assessment? Should the assessment depend on today's weather, how this week compares to last week, or how happy one would be in a world without budget constraints? If you have a permanent disability, then you may nevertheless feel pretty good about how your life is going on a particular day, but you might be much happier if you were not disabled--and you would give a different happiness score if the no-disability state were in the reference set. A similar reference-point issue affecting this thought experiment is whether people compare their well-being on a relative basis to others, and if so, how people construct this comparison set. …

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