Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Tuesday, November 08, 2005

What Is the Value of a Human Life?
Between $5.3 Million and $6.7 Million

It is difficult and painful to have to estimate, ex post, the value of a human life, as when someone is killed in an accident and compensation is being sought.

Fortunately, it is possible to make some inferences, probablistically, based on the types of jobs people take and the risks of death associated with the jobs. Some people take riskier jobs but are well-compensated for assuming the risks; others take lower-paying jobs, in part because those jobs are safer. Implicitly, those in this second group are paying an insurance premium to reduce their personal risk of an early/accidental death. The techniques for using these data to estimate the value of a statistical life [VSL] are fraught with approximations and always subject to refinement.

The latest on the subject is a paper by Thomas J. Kniesner, W. Kip Viscusi, Christopher Woock, James P. Ziliak.

Worker heterogeneity has played a prominent role in the compensating differentials literature. There could be heterogeneity in tastes where workers differ in willingness to accept risk for a given set of market opportunities. There could also be heterogeneity in productivity affecting the worker’s safety-related productivity or market productivity more generally. We examine econometrically the implications of individual heterogeneity for estimates of the value of a statistical life (VSL) and in the process establish that some key anomalous results in the literature disappear when panel data and appropriate econometric estimators are combined to estimate VSL. Our panel estimates also resolve an ongoing theoretical debate regarding the direction of bias in labor market estimates of VSL, indicating that the Shogren and Stamland (2002) assessment of the effect of differences in tastes and safety-related productivity is the dominant empirical influence.

After all their refinements, they conclude:
Whereas previous studies using the Panel Study of Income Dynamics have often yielded extremely high VSL estimates, earlier research did not control for fixed effects. The first-difference estimates most closely paralleling the models in the existing literature range from $5.3 million to $6.7 million, which are at or below the median value of the estimates in the literature. Our estimates call into question the very high published VSL estimates, which may reflect the influence of omitted unobservable effects.


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