Thursday, April 08, 2010

From the Archive: Valuing Lives (required reading)

One more from the archive. You should read the article linked below before class on Monday (we will post additional readings for next week later):

The discussion of valuing lives in the comment thread below is great. In case anyone is still struggling with the approach used by economists, Steven Landsburg (an economics professor at Rochester who also writes a column for Slate) provides more discussion and several examples in this column. He also cites some evidence that shows that lives today are more valuable than lives in the past (because we are richer):

So, how do we find out how much a life is really worth? One of the best ways is to measure how much extra you have to pay someone to take a dangerous job. If lion tamers and elephant tamers have comparable skills and comparable working conditions, but lion tamers earn $20,000 a year more than elephant tamers, it's probably because that's what it takes to compensate someone for the risk of being eaten by a lion. And if that risk amounts to, say, an extra half-percent probability of dying on the job, then you figure that the value of a life must be $20,000 per half-percent, or $40,000 per percentage point, or $4 million.

So, once you carry out that experiment, how much does a typical life turn out to be worth? Professors Dora Costa of MIT and Matthew Kahn of Tufts point out that it depends on exactly when you asked the question. As incomes have risen, so has the value of life. The increase is more than proportional: A 10 percent rise in income is generally associated with about a 15 percent rise in the value of a life. Between 1940 and 1980, according to Costa and Kahn, the value of a life increased from about $1 million 1990 dollars to between $4 million and $5 million 1990 dollars.

(Other researchers, notably Harvard's Kip Viscusi, have found higher numbers. Viscusi estimates that the value of a life in 1970 might already have been as high as $8 million 1990 dollars.)

If lives tomorrow may be worth significantly more than lives today, I think this poses some additional difficulties for figuring out what to do about long term environmental problems.

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