Community versus market values of life.

• Author: Cooter, Robert
• Position: Abstract through II. Community Damages and the Community Value of Life B. Explaining the Community/Market Distinction, p. 713-741

Abstract

Individuals and communities make choices affecting the risk of accidental death. Individuals balance risk and cost in market choices, for example, by purchasing costly safety products or taking a dangerous job for higher pay. Communities balance risk and cost through social norms of precaution, which prescribe how much risk people may impose on others and on themselves. For example, social norms dictate that bicyclists should wear helmets and automobile passengers should wear seat belts. In both cases, the balance between the fatality risk and the cost of reducing it reveals an implicit value of a statistical life, or "VSL"--an individual "market VSL" in the former case, and a "community VSL" in the latter instance. This Article explores the theoretical differences between community and market VSLs, provides average dollar values for both, and endorses the use of community VSLs in tort (as a measure of damages) and in the regulatory context (as an input to cost-benefit analyses).

Our analysis of existing empirical studies reveals an average community VSL of roughly $2-3 million--significantly smaller in value than market VSLs, which average roughly $7 million. After presenting and explaining these figures, we argue that courts and regulators should base the legal value of a life on the community value. The principal reasons for adopting community VSLs are validity and consistency. Community VSLs are a valid measure of the implicit value of life because they are derived from social norms, which embody the collective preferences and ideals of communities as refined over time. At a minimum, they are more reliable and meaningful measures of the value of life than the current legal alternatives: in tort, the unaided intuition of jurors and, in the regulatory context, individual labor-market decisions made with limited information. Community VSLs would also increase internal consistency in tort, by linking the calculation of damages to the same community-centric standards already used to determine reasonable precaution. If adopted in the regulatory context and in tort law, community VSLs would place both mechanisms of risk regulation on the same, valid foundation.

TABLE OF CONTENTS INTRODUCTION. I. THE ECONOMICS OF TORT DAMAGES (AND ITS INCOHERENCE AS APPLIED TO FATAL INJURIES) A. Damage Estimation in Court: The Current Process B. Consequences of Incoherent Jury Instructions on Damages . II. COMMUNITY DAMAGES AND THE COMMUNITY VALUE OF LIFE A. Measuring Community and Market Values of Life--Evidence from Empirical Studies. B. Explaining the Community/Market Distinction 1. Implementing Community VSLs. C. Social Norms as Ideal Behavior (and Guidepost for Damages). 1. Community Norms, Social Welfare, and Norm-Efficiency III. THE ECONOMIC CASE FOR USING COMMUNITY VSLS AS DAMAGES A. Theoretical Challenges to the Use of VSL Estimates as Damages 1. The "Mismatch" Argument: Small Risks Versus Entire Lives 2. Deterrence 3. Insurance and Optimal Risk Spreading B. Regulatory Use of Community VSLs . 1. Validity. 2. Consistency Conclusion. INTRODUCTION

Individuals routinely trade off money and risk through market choices, such as when they decide to purchase costly automobile safety features or consider whether to accept risky jobs for extra pay. These choices reveal an implicit value of the "goods"--in this case, health--being protected. Communities reveal collective values of life and limb in a different way: using social norms of precaution or rules that prescribe how much time, money, or energy that people ought to sacrifice to reduce risks. For example, social norms dictate that individuals should wear seat belts, that bicyclists should use helmets, and that drivers should adhere, at least roughly, to speed limits. As with individual actions, social norms balance the cost of precaution and the reduction in the risk of harm in each case, thereby revealing an implicit community valuation of the harm at risk. When the risks in question are fatal, social norms of precaution imply "community values of a statistical life," or "community VSLs." Individual safety decisions regarding fatal risks yield what we call "market VSLs."

To date, the economic and legal literature has ignored the important distinction between community and market VSLs. By merging the economics of damages with the study of social norms, this Article compares average dollar values for community and market VSLs and explores the theoretical differences between them. Ultimately, we endorse the use of community VSLs in legal contexts in which the valuation of life is necessary, either for remedial purposes or the setting of precautionary or regulatory standards.

Our first observation is empirical. After reorganizing the existing VSL literature to account for the community/market distinction, we find a significant difference in magnitude between community and market VSLs. Based on the small pool of existing VSL studies that reflect community judgments about risk, we find that community VSLs average approximately $2-3 million. Market VSLs, by contrast, center around $7 million. In terms of magnitude, community VSLs fall between the values of life determined though tort litigation (which average under $1 million and vary widely) and those used in the regulatory context (which are derived from market VSLs and commonly range $5-7 million).

After discussing the relative magnitudes of community and market VSLs, we make the theoretical case for using community VSLs as a measure of tort damages. In determining legal fault or "reasonable care" in tort cases, courts often rely on a community standard of care. In determining damages, however, courts do not appear to rely on the community valuation of harm. Judge Hand's famous equation (B = P x L) (1) explicitly links, and balances, the costs of precaution and the expected harm associated with an activity. Though the rule is typically conceived as a way to compute the legal standard of care in the absence of an accepted community standard, the rule can also be used to estimate appropriate damages in the presence of a clear community standard. (2) Community VSLs are the result of applying the Hand Rule in the latter fashion, with social norms supplying the values of the "B" and "P" terms. For example, if social norms dictate that children should wear bicycle helmets, then the cost and risk reduction associated with using helmets would reveal appropriate damages for a child killed or injured by tortious activity. If the full cost of using a bicycle helmet, including both the cost and disutility of wearing it, is $100, and the helmet reduces the risk of death by 1/10,000, community damages in the case of wrongful death would be $1 million (the ratio of cost to marginal risk reduction).

If adopted in tort law as a measure of damages, community VSLs would prove useful for several reasons. First, social norms of precaution provide a more meaningful valuation of harm than the unaided intuition of juries. The type of norms considered here as a plausible basis for community VSLs are more than mere behavioral patterns or average behaviors; rather, they are collective agreements, refined over time, about what behaviors are acceptable and what behaviors warrant the imposition of informal social sanctions. Second, because community VSLs rely exclusively on risk/money tradeoffs that are backed by well-accepted social norms, they fit seamlessly within the current rules on tort. The "reasonable person" takes her cues from the community, (3) and when the community dictates certain precautions through social norms, it also provides an implicit valuation of the harm at risk. The more precaution the community requires, the greater the community's valuation of the harm at risk, and vice versa.

When courts determine both negligence and damages by reference to community standards (social...