Economic Estimates of the Value of Life

Abstract
This paper reviews the economic literature that, for policy evaluaton purposes, assigns a value to risking human lives. It argues the ethical justification for evaluating risk by observing how much people are willing to pay personally to avoid risks. Most willingness-to-pay figures are based on observations of how much compensation workers must be paid to work at a risky job. The conceptual and practical problems and biases in these figures are explained. The main studies of financial value of life calculation are reviewed in light of this discussion. The review concludes that a conservative estimate for the value of risking a life is $8 million (1984 dollars), a figure far greater than is typically used in policy analysis. Policy-makers are often required to weigh the benefits of instating safety precautions in a project or policy alternative against its costs. Making these tradeoffs requires an evaluation of the alternative relative risk, i.e., a translation of potential risks into dollars and cents. In this article, I will summarize and critically review from an economist's point of view the literature on the dollar value of risking life¿the ``value of life (VOL)''¿concentrating on the literature written by fellow economists. Evaluation of nonfatal injury and illness is just as critical a part of risk evaluation; however, space constraints prevent me from including it in this discussion. VOL figures are not meant to be equivalent to what you would pay in ransom money to a kidnapper in order to save your life.