The economics and politics of valuing life

By Felix Salmon
February 17, 2011
Binya Appelbaum's NYT article on the various different values of a human life which are used by government agencies to justify regulations.

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I love Binya Appelbaum’s NYT article on the various different values of a human life which are used by government agencies to justify regulations.

The first thing to admire about the piece is that it doesn’t dwell on ethics or philosophy, as most such stories do — there are no rhetorical flights of fancy about the government trying to put a dollar value on love, or that kind of thing. Instead, Appelbaum goes on a tour of government agencies, looking at the numbers they’re using now, how those numbers differ from other agencies, and how they have changed over time:

The Food and Drug Administration declared that life was worth $7.9 million last year, up from $5 million in 2008, in proposing warning labels on cigarette packages featuring images of cancer victims…

The Bush administration rejected a plan in 2005 to make car companies double the roof strength of new vehicles, which it estimated might prevent 135 deaths in rollover accidents each year…

Last year, the Obama administration imposed the stricter and more expensive roof-strength standard, and it published a new set of calculations showing that the benefits outstripped the costs.

Most of the difference came from the increased value of human life. By raising that number to $6.1 million from a figure of $3.5 million in the original study, the Obama administration rendered those 135 lives — and hundreds of averted injuries — more valuable than the roofs…

Agencies are allowed to set their own numbers. The E.P.A. and the Transportation Department use numbers that are $3 million apart. The process generally involves experts, but the decisions ultimately are made by political appointees.

The Office of Management and Budget told agencies in 2004 that they should pick a number between $1 million and $10 million. That guidance remains in effect, although the office has more recently warned agencies that it would be difficult to justify the use of numbers under $5 million, two administration officials said.

This kind of behavior leaves the agencies open to charges of inconsistency and capriciousness: if at first you don’t succeed in making your cost-benefit calculation work, then just try again with an arbitrarily higher number for the benefits involved.

But I think that this is a case where the perfect is the enemy of the good. As Manchester University professor Robert Hahn notes in the article, “the reality is that politics frequently trumps economics”. That’s a fact of life. And in a world where political considerations are ultimately going to power many if not most decisions, using dollar values for lives saved is a good way of keeping such arguments grounded in reality.

Sure, businesses don’t like it when the FDA ups its value for a life saved by acetaminophen warning labels to $7 million from $5 million, and it’s entirely possible that the FDA changed the valuation only so that it could provide an official justification for a decision it had already made. The fact is, however, that these calculations are always messy at the best of times. It’s easy to point to the value-per-life part of the calculation, because that’s a hard number. But how on earth is the FDA meant to calculate the number of lives saved by adding a second warning label to acetaminophen bottles? The error bars there are going to be much bigger than the differences in value-per-life numbers.

In that context, a little bit of fuzziness in the $5 million to $10 million range seems entirely reasonable to me. It’s regulators’ job to make judgments, not to simply sit at a desk with a calculator and determine which of two numbers is larger. And at the same time it’s reasonable to ask regulators to justify their judgments using math. So sometimes they’ll use a slightly higher number, and sometimes it’ll be lower. Giving regulators a bit of wiggle room gives them the ability to do their jobs, while restricting that wiggle room allows a simple smell test to be applied.

None of this is exactly pretty, and it’s easy to see why Appelbaum couldn’t get straight answers out of the technocrats he talked to. But if anything the amount of wiggle room is smaller than I would think reasonable:

In December, the E.P.A. said it might set the value of preventing cancer deaths 50 percent higher than other deaths, because cancer kills slowly. A report last year financed by the Department of Homeland Security suggested that the value of preventing deaths from terrorism might be 100 percent higher than other deaths.

Both those numbers could and arguably should be significantly higher, I think. Dying of cancer is a particularly gruesome — and expensive — way to go. And the cost of the terrorist attacks of September 11 is well up in the trillions at this point — getting on for a billion dollars per initial life lost.

So color me impressed that the US government has found a way of getting things done and remaining empirical in an atmosphere which by its nature is always going to be highly political. It comes as no surprise that the Obama administration is using values higher than the Bush administration did — that’s part of what Obama meant when he promised to toughen up government regulation of corporations. I’m just happy that there’s a culture in Washington of basing these decisions on some kind of numerical argument.

(On which matter I have one quibble with Appelbaum’s piece. He says that if companies must pay lumberjacks an additional $1,000 a year to perform work that generally kills one in 1,000 workers, that would impute a $1 million value on a human life. I don’t think that’s true: you should take the present value of $1,000 per year before you multiply by 1,000. So the imputed value of human life here would be much higher than $1 million, depending on how long the average lumberjack works at his job.)


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Risk aversion.

Posted by guanix | Report as abusive

About the lumberjacks: The risk of death needs to be expressed per unit time, since the cost is expressed per unit time ($1000 per year). Risk tables by profession are usually expressed as risk per worker per year. If the 1 in 1000 risk were per year, Appelbaum’s math would be correct. But as worded in Appelbaum’s article, it’s not clear and Salmon’s correct if the risk is expressed per worker career.

Posted by cassidy | Report as abusive

My great-grandfather’s cousin Floyd was killed in the Malbone Street BRT wreck in 1918. The family received a settlement of something in the neighborhood of $200,000, if I recall correctly. According to two CPI calculators I checked, that works out to about $3,000,000 in today’s dollars. FYI.

Posted by RobSterling | Report as abusive

The problem with the goverment human life value numbers are that they are stupidly wildly foolishly high.

Very few Americans make the life choices that reflect that they value their lives at a $5,000,000 price point.

Heck… if you assume a $50,000 annual earnings and a 40 year worklife that represents the total value of all productive labor to society and gets you to 2 million.

This is why an Indian can buy new basic transport for 3,000usd and an American street legal equilivant sells for 10,000usd.

I’m all for reasonable safety features and polution controls but when you get to 3x the bear bones cost at some point you’ve got a bunch of people who would like to be driving a car taking the bus.

That might make the Sierra club happy. It might make Felix happy since he prefers to bike… and it might make me happy since it means fewer cars on my interstate and a faster drive into the office… but still… we aspire to be a free country don’t we? How many people would vote to make the Tata peoples car legal in the U.S. if it were put on a national ballot? I think it would pass by a very wide measure.

Posted by y2kurtus | Report as abusive

The Navy Bureau of Personnel has figures on the cost to recruit–basically replacement cost of a human–and has them further broken down by the cost to recruit and train a boatswain versus the cost to recruit and train a nuclear engineer. This is true for the other services as well.

If someone joins to be a boatswain but tests well enough to be a nuclear engineer he can switch. If they join to be a nuclear engineer and want to switch to a boatswain they cannot because it is uneconomical.

There is an additional cost for a security clearance which one can only get by living a specific sort of life.

These figures would probably point to a life worth less than five million dollars.

I think one reason for the number of suicides among the military is the fact that life is so cheap outside of the US. “Yea, your mate’s dead. Get over it and go back and fight.” Nothing here prepares them for that.

Posted by bidrec | Report as abusive

The value of life definitely increases in the last few days when it spends 27% of our health care dollars. We can decrease that burden by being smarter. 41% of the US population had Living Wills in 2007. The problem is that document is nowhere to be found when the medical response team needs them. So, using the KISS principle, let’s go after this group that has already made their choice known and make that choice clear by putting it somewhere in their person. On a drivers license? Or an implanted computer chip? Or a database we can download from a cloud. I’m sure there can be an i-Phone app made for it. We will help save those precious Medicare dollars if we did this.

Posted by Dancanete | Report as abusive

“Dying of cancer is a particularly gruesome — and expensive — way to go”

Felix, check out this very interesting TED talk by Dr. William Li. It is consistent with The China Study. In both cases, they could control cancer—repeatedly turn it on and turn it off.

Posted by Bfuruta | Report as abusive

No html tags?
Here is the address: m_li.html

Posted by Bfuruta | Report as abusive

9/11 is only costing trillions because the US wants to spend trillions on its reaction. It’s doing that because the US had grown accustomed to having an unwarranted sense of invincibility.

A sense of invincibility, once lost, is virtually impossible to regain, so there’s virtually no natural limit on spending trying to get it back; and there’s lots of clamour for more spending, especially on the side of security suppliers selling snake-oil of all kinds.

Posted by BarryKelly | Report as abusive