Is a Child's Life Twice as Valuable as an Adult's?

• Author: Kniesner, Thomas J.
• Position: BRIEFLY NOTED

The rise of interest in evidence-based policymaking has created incentives for regulatory agencies to demonstrate the overall benefit-cost merits of their policies. An agency can use evidence to choose more cost-beneficial policies, or it can create the appearance of desirable policies by changing the ground rules by which it assesses a policy's merits.

The Consumer Product Safety Commission (CPSC) recently chose the latter course when monetizing the benefit of mortality risk reductions for children from a proposed safety standard for operating cords on custom window coverings. The cords are currently estimated to be responsible for nine fatal injuries annually. Each of those deaths is a tragedy, but together their loss as measured by typical value of a statistical life (VSL) estimates would not justify the cost of the proposed standard. Instead of accepting that calculus, the CPSC changed its policymaking rules to double--and considers tripling--the VSL to analyze the proposed rule.

Equitable VSL / Mortality costs comprise the most prominent share of life-saving policy benefits, and risks to children are a major focus of CPSC efforts. Doubling the rate at which regulations' benefits are valued can result in major swings in regulatory policy attractiveness.

Agencies throughout the government use VSL estimates to monetize the mortality risk reductions of policies. The underlying principle guiding benefit assessment for mortality risks and other policies is that it is based on individual willingness to pay for the risk reduction. The principal source of willingness-to-pay values consists of data drawn from actual decisions that people make with respect to mortality risks. Most of the revealed preference estimates are drawn from studies of wage premiums workers receive for mortality risks. There is almost a half century of economics literature documenting the magnitude of the wage premiums workers receive for health risks.

Agencies use this information to apply an average VSL in the range of $11 million to $12 million. These values make no distinctions based on age, income, race, gender, or other personal characteristics. We refer to the practice of valuing risks symmetrically as equitable risk tradeoffs.

There is, of course, potential heterogeneity in the VSL. More-affluent people require higher levels of compensation to incur a given risk. There are also age variations in the estimated VSL amounts across different age groups. Estimates of...