THE LIMITS OF SELF-INTEREST: RESULTS FROM A NOVEL STATED-PREFERENCE SURVEY TO ESTIMATE THE SOCIAL BENEFITS OF LIFE-PROLONGING REGULATIONS.

• Author: Finkel, Adam M.
• Position: Survey

1. INTRODUCTION 454 II. GROPING TOWARDS SOCIAL BENEFITS VALUATION, FROM TWO DIFFERENT STARTING POINTS 459 III. IMPUTED VALUATION AS THE MIDPOINT OF TWO MORE ROBUST RESPONSES 465 IV. RESULTS: MEANS AND DISTRIBUTIONS OF IMPUTED VALUATIONS 469 V. THE IMPORTANCE OF WHAT CITIZENS TRADE FOR WHAT 471 VI. "EXPLAINING" VALUATIONS DERIVED FROM MACRO-SCALE ELICITATION 473 VII. DISCUSSION AND CONCLUSIONS 474 I. INTRODUCTION

   We may fervently believe that human life is "priceless," (3) but society routinely trades off lives for dollars, both by inaction and by regulatory (and "soft law") action. (4) For supporters of stringent environmental, health, and safety regulation, and for believers in the principle that governmental intervention is only justified when the benefits of the intervention exceed its costs, it is crucial that methods of analysis neither misestimate risks nor incorrectly value the benefits of risk reduction.

   This Article reports on a new way to estimate the value that citizens place on life-prolonging regulatory benefits, one that challenges both the conventional goal of estimating the "value of a statistical life" (VSL) and the specific way economists currently estimate it. (5) VSL estimates are the primary way regulatory agencies now translate information about risk reduction into monetary benefits that can be compared with costs and used to guide decisions about whether and how stringently to regulate. (6) But there is an odd mismatch between the scenarios economists use to estimate VSL and the arenas in which lives are prolonged via regulatory intervention (or not prolonged because of decisions to eschew regulation). Simply put, estimates of VSL impute (or elicit) tradeoffs between a small probability of death to an individual and the individual's willingness to pay (WTP) to avoid it (in "stated-preference" (SP) studies), or her demands for higher wages to accept it (in the typical "revealed-preference" (RP) study). (7) The decision of whether and how stringently society should regulate, in contrast, is not a personal choice but a policy choice: should we collectively incur large financial costs to prolong many lives?

   This question operates at a far different scale from the personal, and also quintessentially involves what we might term "shared purpose," (8) an enterprise that triggers citizens' desires to help improve the public welfare (including benefits to those close to them but not themselves), as well as any aversions they might have to paying for an intervention that will benefit people other than themselves (perhaps benefiting only unknown people). (9) Herein we describe a complementary approach to standard means of VSL estimation to raise broader questions about how society develops such crucial information. We raise the possibility that because traditional methods actually estimate the individual marginal rate of substitution (MRS) between wealth and mortality risk, they are not necessarily estimating the VSL, or that in any event the VSL may not be the best unit estimator of the benefits of large-scale life-saving. But we hasten to add that because our method never directly probes the MRS itself, it too may miss the target.

   Regulatory decisions affect society as a whole, and significant regulations often involve expenditures of about $[10.sup.7] to $[10.sup.9] per regulation to reduce statistical fatalities on the order of about 10 to 10,000. (10) But the studies from which VSL estimates are either inferred or elicited do not involve observations or questions anywhere near this scale. (11) Instead, they typically involve fractions of one life "saved," and hypothetical WTP on the order of fifty dollars. (12) For example, someone willing to pay fifty dollars to eliminate a fatality risk to herself of one chance in 100,000 would be indicating a VSL of $5 million ($50 divided by 0.00001), which is close to (though below) the average value federal agencies now use. (13) Tradeoffs involving wage premia are typically of a slightly larger scale (14)--perhaps on the order of $1,000 in additional annual wages associated with an excess annual occupational risk of 1/5000 (again, yielding a VSL of $5 million). So the scale of tradeoffs examined may differ from the scale of the actual decisions made by a factor of up to 1 billion-fold ([10.sup.-5] expected fatalities versus [10.sup.4]).

   So why not ask people directly to evaluate tradeoffs in the ([10.sup.9] dollars/[10.sup.3] lives) range, rather than the (10 dollars/[10.sup.5] lives) range, to see if the change of scale--and the addition of shared purpose--affects VSL estimates? Scholars and regulatory agencies have been reluctant to pose these sorts of questions or utilize their results, due to concern that it is either inappropriate or quantitatively misleading to deliberately include altruism in VSL estimates. (15) We suggest that the first concern is misplaced, as policy makers at least need access both to purely self-interested and to other-regarding estimates of the value of life-prolonging interventions.

   The concern about misestimating is more challenging to resolve, but researchers seem to agree that the problem here, if any, involves only one of two basic types of altruism. (16) "Paternalistic" or "safety-focused" altruism embodies concern only about the health/safety of another; a paternalistic altruist would want a fellow citizen to benefit from increased longevity even if it came at a cost that citizen preferred not to incur. (17) In contrast, "non-paternalistic" altruism would value others' longevity only to the extent that their overall welfare (longevity benefits net of the welfare decrement due to increased expenditure) increased. (18) In theory, summing VSL estimates from citizens who in fact care about others' overall welfare (not just their health) will introduce upward bias (double-counting) into the equation, because each individual's estimate will include some "over-spending" on all their fellow citizens (spending that increases their health beyond that necessary to maximize their welfare). For this reason, the United States Environmental Protection Agency (EPA) has explicitly recommended that cost-benefit analysis might try to account for paternalistic altruism, and favors isolating that component via "a survey that would inform respondents about health improvements that others would experience from the policy, but also ask each respondent to assume that all others would be taxed an amount equal to their private willingness to pay for the policy, so that their utility remains unchanged." (19)

   Our method as implemented to date cannot separate these two components of altruism, but it can provide an estimate of the value of life-prolonging outcomes possibly containing some double-counting that could be identified and removed. (20) We note, however, that at least one fact--United States welfare programs provide less than 10% of their value in cash, versus specific goods or vouchers for specific purchases--implies a national tendency to favor safety-focused over non-paternalistic altruism. (21)

   We report here the results of an online survey administered to 744 lay Americans in mid-2012, in which implicit individual estimates of the value of life-prolonging regulatory programs were obtained as one part of a detailed "cost perception" experiment designed in large part to gauge respondents' attitudes about mean-preserving spreads of uncertainty in regulatory cost or benefit. (22) The survey is detailed elsewhere, (23) but briefly, we sought information about four basic questions: 1) How knowledgeable are laypeople about the costs of regulation(s)?; 2) Do laypeople interpret information from regulatory agencies about costs (and lives) as being exaggerated or understated?; 3) (How) do people's preferences for (hypothetical) regulations change when certainty of cost (or benefit) is replaced by a mean-preserving spread of uncertainty?; and 4) (How) do preferences change when (hypothetical) equal inter-individual distributions of regulatory costs are replaced with various unequal ones, both uncorrelated with personal income and correlated with it in various ways? (24)

2. GROPING TOWARDS SOCIAL BENEFITS VALUATION, FROM TWO DIFFERENT STARTING POINTS

   We emphasize that subjects' responses to our "macro" questions do not yield estimates of the VSL, at least not as that quantity is currently defined. The VSL (25) is currently defined as the MRS between personal wealth and personal mortality risk, (26) intended to apply when that risk is small enough that endowment effects (inability to afford the amount that would compensate for the risk) are not at issue. (27) Here we refer to an individual's response to a micro-VSL elicitation as her MR[S.sub.i] and the researcher's aggregation of those responses across a population as the MR[S.sub.p] (some kind of aggregation is inevitable when individual responses differ, as they always do: should the MR[S.sub.p] be defined as the mean (or median) over all responses, the maximum response recorded, or some other percentile of the distribution of responses?).

   Our experiment did not elicit an MRS, from each subject, but rather asked subjects about the desirability of their contributing some personal wealth to a national program costing $X (perhaps with some ambiguity about the exact size of one's personal contribution, see below) so that the national incidence of deaths associated with a particular hazard would decline by Y. (28) This absence of an MR[S.sub.i] does not comport with the standard paradigm for construing the VSL, but we argue here that our experiment can shed valuable light on the valuation of life-prolonging programs and hence of regulatory benefits.

   Indeed, just because a response to a particular kind of SP question yields an MR[S.sub.i], we question: 1) whether (once aggregated to yield an MRp[S.sub.p]) this is in fact a coherent estimate of the VSL (or of the "value of mortality...