The tradeoff between money and small risks of death is the value of statistical life (VSL), which has become the standard for assessing the benefits of risk and environmental regulations. Labor market estimates of the VSL average about $7 million. This valuation amount rises with age and then declines, closely tracking the pattern of consumption over the life cycle. The VSL for those at age 60 is higher than for people in their 20s. Application of this methodology to assess the mortality costs to smokers indicates a personal mortality cost on the order of $200 per pack for men and $100 for women using a 3% discount rate, but based on smokers’ rates of time preference the costs are reduced by about an order of magnitude.
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For further discussion of this policy debate, see Viscusi (1992) and Pete Earley, “What’s a Life Worth? How the Reagan Administration Decides for You,” The Washington Post Magazine, June 9, 1985.
See Memorandum to Secretarial Officers, Modal Administrators, from Tyler Duval, Assistant Secretary for Transportation Policy, and D.J. Gribbin, General Counsel, “Treatment of the Economic Value of a Statistical Life in Departmental Analyses,” February 8, 2008 and the companion document, “Revised Departmental Guidance: Treatment of the Value of Preventing Fatalities and Injuries in Preparing Economic Analyses,” U.S. Dept. of Transportation.
See “EPA Drops Age-Based Cost Studies,” New York Times, May 8, 2003; “EPA to Stop ‘Death Discount’ to Value New Regulations,” Wall Street Journal, May 8, 2003; and “Under Fire, EPA Drops the ‘Senior Death Discount,’” Washington Post, May 13, 2003.
Both series are based on equally weighted minimum distance estimator with a third-order polynomial in age. The cohort-adjusted VSL also includes indicator variables for year of birth.
The risks were weighted by hours of employment in different industries by age and gender.
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This paper is based on the author’s J. Anderson Davis Lecture at the annual meeting of the Academy of Economics and Finance, Nashville, TN, February 15, 2008.