Government agencies cannot make these decisions implicitly. They have to use explicit criteria, and often they do a cost-benefit analysis. An item in the news recently discussed the fact that the Environmental Protection Agency reduced its Value of a Statistical Life (VSL) to about $7,200,000.
The EPA, like other government agencies, must decide whether the cost of a new program or regulation is worth the cost. If the agency predicts that the cost of a regulation will be $100,000,000 but it will save 100 lives, then, using the VSL, one can state that the benefit (equivalent to 100 times $7,200,000 = $720,000,000) is greater than the cost. If the benefit were only 9 lives (equivalent to $64,800,000), then one would state that the benefit is not worth the cost.
How to do that and how to explain it are discussed in this article:
But how do you put a dollar value on a life, even in a generic sense?
It wouldn’t work for researchers to survey Americans at gunpoint and ask how much they would pay not to die. Instead, an unlikely academic field has grown up to extrapolate life’s value from the everyday decisions of average Americans.
Researchers try to figure out how much money it takes for people to accept slightly bigger risks, such as a more dangerous job. They also look at how much people will pay to make their daily risks smaller — such as buying a bicycle helmet or a safer car.
“How much are you willing to pay for a small reduction . . . in the probability that you will die?” asked Joe Aldy, a fellow at the Washington-based think tank Resources for the Future.
The rest is more or less multiplication: If someone will accept a 1-in-10,000 chance of death for $500, then the value of life must be 10,000 times $500, or $5 million.
But it is one thing to calculate the numbers and another to explain them to the public. The EPA has been fighting that battle since last week, when the Associated Press revealed that the agency’s air office had reduced its Value of a Statistical Life.
Al McGartland, the director of the agency’s National Center for Environmental Economics, said the air office had revised the old figure in 2004 after new academic research showed it was skewed too high.
“It’s based on better methods,” McGartland said of the air office’s assessment. He said the new number would increase over time, in part because of inflation.
The EPA’s value for life remains one of the highest. Earlier this year, the Transportation Department raised its value — but even after the increase, it stood at $5.8 million, more than a million dollars less than the EPA’s.
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