Journal of Risk and Uncertainty

, Volume 35, Issue 1, pp 45–66 | Cite as

Statistical vs. identified lives in benefit-cost analysis

Article

Abstract

Evaluation of projects that affect mortality risk usually assumes that risk changes are small and similar across individuals. In reality, risks differ among individuals and information about risk heterogeneity determines the extent to which affected lives are “statistical” or “identified” and influences the outcome of benefit-cost analysis (BCA). The effects of information about risk heterogeneity on BCA depend on, inter alia, whether information concerns heterogeneity of baseline or change in risk and whether valuation uses compensating or equivalent variation. BCA does not systematically favor identified over statistical lives. We suggest some political factors that may explain the apparent public bias.

Keywords

Benefit-cost analysis Value of statistical life Information Heterogeneity 

JEL Classification

D61 D81 H42 I18 

References

  1. Adler, Matthew D. (2006). “QALYs and Policy Evaluation: A New Perspective,” Yale Journal of Health Policy, Law, and Ethics 6, 1–92.Google Scholar
  2. Armantier, Olivier and Nicolas Treich. (2004). “Social Willingness-to-pay, Mortality Risks and Contingent Valuation,” Journal of Risk and Uncertainty 29, 7–19.CrossRefGoogle Scholar
  3. Arrow, Kenneth J. and Robert Lind. (1970). “Uncertainty and the Evaluation of Public Investment Decisions,” American Economic Review 60, 364–378.Google Scholar
  4. Bergstrom, Theodore. (1982). “When is a Man’s Life Worth More than his Human Capital?” In Michael Jones-Lee (ed.), The Value of Life and Safety. North-Holland, Amsterdam.Google Scholar
  5. Bergstrom, Theodore. (2006). “Benefit-cost in a Benevolent Society,” American Economic Review 96, 339–351.CrossRefGoogle Scholar
  6. Blackorby, Charles and David Donaldson. (1990). “A Review Article: The Case Against the Use of the Sum of Compensating Variations in Benefit-cost Analysis,” Canadian Journal of Economics 23, 471–494.CrossRefGoogle Scholar
  7. Bleichrodt, Han and Magnus Johannesson. (1997). “The Validity of QALYs: An Experimental Test of Constant Proportional Tradeoff and Utility Independence,” Medical Decision Making 17, 21–32.CrossRefGoogle Scholar
  8. Breyer, Friedrich and Stefan Felder. (2005). “Mortality Risk and the Value of a Statistical Life: The Dead-anyway Effect Revis(it)ed,” The Geneva Papers on Risk and Insurance Theory 30, 41–55.Google Scholar
  9. Broome, John. (1978). “Trying to Value a Life,” Journal of Public Economics 9, 91–100.CrossRefGoogle Scholar
  10. Broome, John. (1993). “Qalys,” Journal of Public Economics 50, 149–67.CrossRefGoogle Scholar
  11. Buchanan, James M. and Roger L. Faith. (1979). “Trying Again to Value a Life,” Journal of Public Economics 10, 245–248.CrossRefGoogle Scholar
  12. Corso, Phaedra S., James K. Hammitt, John D. Graham, Richard C. Dicker, and Sue J. Goldie. (2002). “Assessing Preferences for Prevention Versus Treatment Using Willingness to Pay,” Medical Decision Making 22, S92–S101.CrossRefGoogle Scholar
  13. Drèze, Jacques. (1962). “L’Utilité Sociale d’une Vie Humaine,” Revue Française de Recherche Opérationnelle 6, 93–118.Google Scholar
  14. Fernandez, Raquel and Dani Rodrik. (1991). “Resistance to Reform: Status Quo Bias in the Presence of Individual-specific Uncertainty,” American Economic Review 81, 1146–1155.Google Scholar
  15. Fried, Charles. (1969). “The Value of Life,” Harvard Law Review 82, 1415–37.CrossRefGoogle Scholar
  16. Gold, Marthe R., Joanne E. Siegel, Louise B. Russell, and Milton C. Weinstein. (1996). Cost-effectiveness in Health and Medicine. Oxford University Press, Oxford.Google Scholar
  17. Graham, John D. (1995). Comparing Opportunities to Reduce Health Risks: Toxin Control, Medicine, and Injury Prevention, National Center for Public Administration Policy Report No. 192, Dallas.Google Scholar
  18. Hadorn, David C. (1996). “The Oregon-priority-setting Exercise: Cost-effectiveness and the Rule of Rescue Revisited,” Medical Decision Making 16, 117–119.CrossRefGoogle Scholar
  19. Hammitt, James K. (2000). “Valuing Mortality Risk: Theory and Practice,” Environmental Science and Technology 34, 1396–1400.CrossRefGoogle Scholar
  20. Hammitt, James K. (2002). “QALYs Versus WTP,” Risk Analysis 22, 985–1001.CrossRefGoogle Scholar
  21. Hammitt, James K. and John D. Graham. (1999). “Willingness to Pay for Health Protection: Inadequate Sensitivity to Probability,” Journal of Risk and Uncertainty 3, 33–62.CrossRefGoogle Scholar
  22. Harsanyi, John C. (1953). “Cardinal Utility in Welfare Economics and in the Theory of Risk-taking,” Journal of Political Economy 61, 434–435.CrossRefGoogle Scholar
  23. Harsanyi, John C. (1955). “Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility,” Journal of Political Economy 63, 309–321.CrossRefGoogle Scholar
  24. Heinzerling, Lisa. (2000). “The Rights of Statistical People,” Harvard Environmental Law Review 24, 189–207.Google Scholar
  25. Howard, Ron A. (1984). “On Fates Comparable to Death,” Management Science 30, 407–422.Google Scholar
  26. Hsu, Shi-Ling. (2007). “The Identifiability Bias in Environmental Law,” Florida State University Law Review, forthcoming.Google Scholar
  27. Jenni, Karen E. and George Loewenstein. (1997). “Explaining the ‘Identifiable Victim Effect,’” Journal of Risk and Uncertainty 14, 235–257.CrossRefGoogle Scholar
  28. Johansson, Per-Olov. (1998). “Does the Choice of Numéraire Matter in Benefit-cost Analysis?” Journal of Public Economics 70, 489–93.CrossRefGoogle Scholar
  29. Jones-Lee, Michael W. (1974). “The Value of Changes in the Probability of Death or Injury,” Journal of Political Economy 99, 835–849.CrossRefGoogle Scholar
  30. Jones-Lee, Michael W. (1976). The Value of Life: An Economic Analysis. University of Chicago Press, Chicago.Google Scholar
  31. Jones-Lee, Michael W. (1979). “Trying to Value a Life: Why Broome Does Not Sweep Clean,” Journal of Public Economics 10, 249–256.CrossRefGoogle Scholar
  32. Jones-Lee, Michael W. (1992). “Paternalistic Altruism and the Value of Statistical Life,” Economic Journal 102, 80–90.CrossRefGoogle Scholar
  33. Jones-Lee, Michael W. (2004). “Valuing International Safety Externalities: Does the ‘Golden Rule’ Apply?” Journal of Risk and Uncertainty 29, 277–287.CrossRefGoogle Scholar
  34. Keeney, Ralph L. (1995). “Understanding Life-threatening Risks,” Risk Analysis 15, 627–637.CrossRefGoogle Scholar
  35. Keeney, Ralph L. (1996). “Valuing Billions of Dollars.” In Richard J. Zeckhauser, Ralph L. Keeney, and James K. Sebenius, Wise Choices: Decisions, Games, and Negotiations. Harvard Business School Press, Boston.Google Scholar
  36. Kemp, Simon. (2003). Public Goods and Private Wants: A Psychological Approach to Government Spending. Edward Edgar, Northampton, MA.Google Scholar
  37. Kuran, Timor and Cass R. Sunstein. (1999). “Availability Cascades and Risk Regulation,” Stanford Law Review 51, 683–768.CrossRefGoogle Scholar
  38. Lamm, Richard D. (2001). “Compassion for Unidentified Lives,” Healthplan 42, May/June.Google Scholar
  39. Linnerooth, Joanne. (1982). “Murdering Statistical Lives...?” In Michael Jones-Lee (ed.), The Value of Life and Safety. North-Holland, Amsterdam.Google Scholar
  40. McNeil, Barbara J., Ralph Weichselbaum, and Steven G. Pauker. (1981). “Speech and Survival: Tradeoffs Between Quantity and Quality of Life in Laryngeal Cancer,” New England Journal of Medicine 305, 982–987.CrossRefGoogle Scholar
  41. Merrell, Paul and Carol Van Strum (1990). “Negligible Risk: Premeditated Murder?” Journal of Pesticide Reform 10, 20–22.Google Scholar
  42. Miller, Wilhelmine, Lisa A. Robinson, and Robert S. Lawrence, eds. (2006). Valuing Health for Regulatory Cost-Effectiveness Analysis, Institute of Medicine. National Academies Press, Washington, DC.Google Scholar
  43. Mishan, Ezra J. (1971). “Evaluation of Life and Limb: A Theoretical Approach,” Journal of Political Economy 79, 687–705.CrossRefGoogle Scholar
  44. Okun, Arthur M. (1975). Equality and Efficiency: The Big Tradeoff. Brookings Institution, Washington, DC.Google Scholar
  45. Olson, Mancur. (1971). The Logic of Collective Action: Public Goods and the Theory of Groups. Harvard University Press, Cambridge.Google Scholar
  46. Pliskin, Joseph S., Donald S. Shepard, and Milton C. Weinstein. (1980). “Utility Functions for Life Years and Health Status,” Operations Research 28, 206–224.CrossRefGoogle Scholar
  47. Pratt, John W. and Richard J. Zeckhauser. (1996). “Willingness to Pay and the Distribution of Risk and Wealth,” Journal of Political Economy 104, 747–763.CrossRefGoogle Scholar
  48. Raiffa, Howard, William B. Schwartz, and Milton C. Weinstein. (1977). “Evaluating Health Effects of Societal Decisions and Programs,” Decision Making in the Environmental Protection Agency. Prepared for the Committee on Environmental Decision Making, National Academy of Sciences, Washington, DC.Google Scholar
  49. Richardson, Jeff and John McKie. (2003). “The Rule of Rescue,” Social Science and Medicine 56, 2407–2419.CrossRefGoogle Scholar
  50. Samuelson, Paul A. (1954). “The Theory of Pure Provision of Public Expenditures,” Review of Economics and Statistics 36, 387–389.CrossRefGoogle Scholar
  51. Schelling, Thomas. (1968). “The Life You Save May Be Your Own.” In S.B. Chase, Jr. (ed.), Problems in Public Expenditure Analysis. Brookings Institution, Washington, DC.Google Scholar
  52. Small, Deborah A. and George Lowenstein. (2003). “Helping a Victim or Helping the Victim: Altruism and Identifiability,” Journal of Risk and Uncertainty 26, 5–16.CrossRefGoogle Scholar
  53. Sunstein, Cass R. (2005). The Laws of Fear: Beyond the Precautionary Principle. Cambridge University Press, Cambridge.Google Scholar
  54. Tal, Alon. (1998). “Beyond the Rhetoric of Premeditated Murder: Toward a Rational and Compassionate Environmentalist Perspective About the Ethics of Risk Assessment,” Ecosystem Health 4: 170–176.CrossRefGoogle Scholar
  55. Tietenberg, Tom. (1996). “Environmental Justice,” Chapter 20 in Environmental and Natural Resource Economics. Harper Collins, New York.Google Scholar
  56. Tversky, Amos and Daniel Kahneman. (1974). “Judgment Under Uncertainty: Heuristics and Biases,” Science 185, 1124–1131.CrossRefGoogle Scholar
  57. Ulph, Alistair. (1982). “The Role of Ex Ante and Ex Post Decisions in the Valuation of Life,” Journal of Public Economics 18, 265–276.CrossRefGoogle Scholar
  58. U.S. Office of Management and Budget. (2003). Circular A-4, Regulatory Analysis, Washington, DC.Google Scholar
  59. Viscusi, W. Kip (1992). “Strategic and Ethical Issues in the Valuation of Life,” Chapter 2 in Fatal Tradeoffs: Public and Private Responsibilities for Risk. Oxford University Press, Oxford.Google Scholar
  60. Viscusi, W. Kip (2000a). “Misuses and Proper Uses of Hedonic Values of Life in Legal Contexts,” Journal of Forensic Economics 13, 111–25.CrossRefGoogle Scholar
  61. Viscusi, W. Kip (2000b). “Risk Equity,” Journal of Legal Studies 29, 843–71.CrossRefGoogle Scholar
  62. Viscusi, W. Kip and Joseph E. Aldy. (2003). “The Value of a Statistical Life: A Critical Review of Market Estimates Throughout the World,” Journal of Risk and Uncertainty 27, 5–76.Google Scholar
  63. Weinstein, Milton C., Donald S. Shepard, and Joseph S. Pliskin. (1980). “The Economic Value of Changing Mortality Probabilities: A Decision-theoretic Approach,” Quarterly Journal of Economics 94, 373–396.CrossRefGoogle Scholar
  64. Williams, Alan. (1979). “A Note on Trying to Value a Life,” Journal of Public Economics 10, 257–258.CrossRefGoogle Scholar
  65. Zeckhauser, Richard J. (1975). “Procedures for Valuing Lives,” Public Policy 23, 419–464.Google Scholar
  66. Zeckhauser, Richard J. and Donald S. Shepard. (1976). “Where Now for Saving Lives?” Law and Contemporary Problems 40, 5–45.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  1. 1.Center for Risk AnalysisHarvard UniversityBostonUSA
  2. 2.Toulouse School of Economics (LERNA-INRA)ToulouseFrance

Personalised recommendations