AuthorSharkey, Catherine M.
PositionValue of a statistical life

    Professor Kip Viscusi pioneered the use of the value of a statistical life ("VSL") as the gold standard for agency use in cost-benefit regulatory analysis. Although there is some variation among federal agencies in terms of the VSL, over time the range has narrowed to $6-$9 million. Agencies, moreover, deploy a uniform VSL. While there have been some calls to vary VSL on the basis of income or demographic characteristics such as age, there is near unanimous agreement that VSL should not vary by race or gender, thus valuing equally black, female, and white male lives.

    1. Agency Use of Average VSL

      (1). Methodology

      The VSL is calculated by measuring the amount of money an individual would be willing to pay to eliminate a small risk of death and then dividing that amount by the probability of that risk. For example, if the average American is willing to pay $900 to eliminate a 1/10,000 risk of death, then the average VSL would be $9 million. (1) The best VSL estimates are gleaned from data reflecting choices made by people facing risks in the work setting--in other words, the wage premium they accept to face small risks of death. Thus, VSL is not an abstract concept conceived by agencies, but instead tracks people's preferences and incorporates their judgments regarding willingness to accept risks. (2)

      In conducting cost-benefit analyses for regulatory policy decisions, federal agencies use VSL as a benefits measure (in the form of lives saved) by a regulation under consideration. So, continuing with the simplistic example above, if the agency uses a VSL of $9 million and a particular regulation is projected to save 10 lives on average, then the estimated benefits are $90 million. Cost-benefit analysis would thus favor such a regulatory policy if the expected costs are less than $90 million and correspondingly reject the policy if the expected costs exceed this amount. (3)

      (2). Heterogeneity

      Agencies independently choose how to calculate VSLs and there is some variation across agencies. (4) In 2012, the Institute for Policy Integrity submitted comments to the Office of Information and Regulatory Affairs' ("OIRA") then-Administrator Cass Sunstein, urging that unifying the VSL across agencies should be a priority. (5) Sunstein has argued that VSL should not be standardized across agencies because the population is willing to pay more to avoid certain types of risks--for example, cancer deaths--and, consequently, risks that are particularly unpalatable should not be considered the same as others. (6)

      In practice today, agencies' VSL figures coalesce around a value between $6 and $9 million. (7) A 2017 White House report noted that only three agencies had issued guidance on VSL calculations but that "[i]n practice, agencies have tended to use a value above the mid-point of" the range of VSL provided by Circular A-4, issued by the Office of Management and Budget. (8)

      Historically, agency VSLs have varied quite significantly. In 2011, for example, the Environmental Protection Agency (EPA) set the VSL at $9.1 million (while considering placing a 50% premium on cancer deaths), the Food and Drug Administration ("FDA") used a VSL of $7.9 million (increasing its 2008 estimate by more than half), and the Department of Transportation used a value of $6 million. (9)

      VSL is subject not only to wide interagency variation, but also intertemporal variation. In 2016 dollars, the Department of Agriculture's VSL was $3.6 million in 1994, but $8.9 million by 2016; similar increases have taken place at the FDA and EPA. (10) There are some outlier examples of agencies whose figures have not kept pace even with inflation. Consider, for example, that in 1995, the Nuclear Regulatory Commission (NRC) set its VSL at approximately $3 million and this value had not been updated as of 2017, rendering NRC's VSL a third of typical federal agency estimates. (11) Discrepancies of this magnitude seem unlikely to be justified by small variations in agency expectations about willingness-to-pay to avoid certain risks.

    2. Variations Based on Demographics?

      Some scholars have argued that, in the agency policymaking context, VSL should vary according to the demographic group that is the target of the policy in question in order to avoid forcing members of groups with lower VSLs to pay more for a risk reduction than the dollar amount at which they value that risk reduced. (12) Given that taxpayers will eventually be responsible for the costs of the policy decisions made using VSL, adopting a uniform VSL could result in the implementation of policies that cost more than the amount at which they are valued by their ultimate beneficiaries. (13) For example, there was a period wherein the EPA applied a "senior discount" to the VSL for the elderly. (14) This practice has since fallen out of favor. In a draft report to Congress, however, OIRA noted that a major source of uncertainty for environmental regulations was that VSLs may be lower for the older populations who disproportionately benefit from environmental protections. (15)

      Using different VSLs for different groups of people could result in policies that allocate benefits to the rich being implemented more frequently than policies that assist the poor, since the rich have a higher VSL. (16) Moreover, there is some evidence that the tax system may not respond to the distributive impacts created by agency policymaking, such that higher taxes are not imposed on the rich when they enjoy the bulk of the benefits of a new policy and likewise the poor are not taxed more heavily when policies allocate benefits in their direction. (17) If it is true that the direct beneficiaries of a policy are not made primarily responsible for paying for it, in that the tax system does not balance each new policy benefit with a higher tax rate, then concerns about forcing an individual to pay more for a policy than the dollar amount at which she values that policy are less warranted since costs are spread rather than assigned primarily to the group receiving benefits. Indeed, using a lower VSL for certain demographic groups would merely send more benefits to groups with higher VSLs even though the costs of these benefits may be shared by groups with both high and low VSLs. Use of a nonuniform VSL in agency decisionmaking could therefore exacerbate inequality rather than respect individual preferences. (18)

      With respect to evaluating heterogeneity in VSL estimates based on demographics, most economic studies address age and income level. But a few tackle race and gender. Notably, Professor Kip Viscusi has documented that VSL is highest for white males and lowest for black males. (19) Specifically, the overall white VSL is $15 million, more than double the overall black VSL at $7.2 million. And, a similar gender gap emerges: the $18.8 million VSL figure for white males is likewise double that of the overall figure for white females at $9.4 million. (20)

      Racial and gender differences might arise from two very different sources. First, preferences with respect to risk might vary (as with age and income level) by race. (21) Second--and of particular significance in evaluating the soundness of disaggregating VSL estimates by race and/or gender--there are fundamental differences in labor market opportunities between blacks and whites and men and women. The relevance of this second factor can hardly be gainsaid, in light of "[t]he substantial literature on market discrimination [that] has documented that there is a persistent difference in the earnings of whites and blacks even after controlling for a broad set of individual characteristics and job characteristics." (22) Indeed, as Professor Kip Viscusi has explained, "Although differences in preferences could be influential, such differences cannot reconcile the various empirical findings. Rather, there must also be fundamental differences in labor market opportunities for blacks and whites as well as in the structure of their offers for risky jobs." (23)

      What is key for my purposes here is that, in conducting cost-benefit analyses for regulatory policy decisions, federal agencies adopt a uniform VSL in the sense that it does not vary according to race and gender. (24) In addition to the likely political infeasibility of varying VSL estimates by race and gender, such a practice would not be normatively desirable in light of the sources of market failure, such as labor market discrimination. (25)


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