Essay on Value of Life

People’s choices on safety involve various estimates that determine ‘people’s willingness to do all they can to reduce the probability of dying. People will trade off wealth in exchange for their lives. However, they often consider estimates such as environmental issues, medical interventions and public safety in travel (Andersson & Treich, 2011). The scenario in this study involves public safety in travel. An example is given whereby a road improvement will save one life every year, reducing the number of fatalities from 2 to 1. 1000, identical people are said to be using the road. The question in this example concerns the value of life as to whether the travelers are willing to pay what it takes to save their lives. The life lost will be random, and so it takes a collective effort to determine ‘everyone’s value of life. In this paper, there will be an analysis of the monetary value of increased safety and specifically in reducing mortality.

Economists define the value of life as the monetary value of limiting the risk of mortality. For instance, in the transport sector, there are many benefits and costs induced in the regulations, including road improvements to reduce the mortality rate. While improving road safety, certain costs seem priceless but can be calculated at the current market price. Value of life is one of these costs. In calculating the value of life, the product and estimates arrived at are referred to as the value of a statistical life (VSL) (Andersson & Treich, 2011). VSL illustrates the monetary costs of mortality risks, which are similar and small among the targeted population. In the case scenario, all 1000 people are travelers and risk dying. VSL also computes the value that would prevent a single statistical death. Therefore, in the example of road improvement, VSL would help in calculating the value of life since road improvement will save one life, reducing the number of deaths.

Estimates of the VSL

The primary issue in the VSL computation is ‘people’s willingness to remain alive. It analyses the trade-offs that individuals are willing to make to save their lives. According to Kniesner et al. (2013), the value of life is marked by the ‘people’s tendency to use all their wealth to avoid any inevitable loss of their lives. People take life-threatening risks that could be avoided by money and time. Nonetheless, they never get to remain safe from all death risks. In the example, transport safety is pointed out as a significant issue. The statistics show that the road has been causing two deaths per year. However, if it is improved and maintained, it reduces that number into half. Which means road improvement offers a 50 percent reduction in the chance of death (from 2 in 1000 to 1 in 1000).

The trade-offs in VSL refer to the exchange that occurs when people accept wealth to take fatal risks and expend wealth to avoid death risks. There is an exchange between the probability of dying and wealth. The contention in this trade-off is that an individual will pay everything to remain alive, the same person might not be willing to contribute any large amount if it is for a group benefit (Kniesner, Viscusi, Woock & Ziliak, 2012). In the scenario of road improvement, the value of life is to be contributed for a general benefit in that the single person facing death is not known among the 1000 travelers. Therefore, the probability of dying will be multiplied by the number of people experiencing it (1000). In VSL, the likelihood of death is expressed in dollar units. (dollar per death).

The connection between the value of life and safety as a result of road conditions is determined on the ‘people’s need for security to avoid fatalities. Therefore, the approach used relies on ‘individuals’ willingness to pay (WTP). This approach assumes that individuals will make economic preferences to evade fatal risks (Kniesner et al., 2012). The calculation of the monetary value of life will be based on the VSL model whose formula is indicated below.

V ≡ pu(w) + (1 − p)v(w), whereby, “P is the probability of surviving the specific period involve, in this case, 1 year, u(w) is the utility of wealth if an individual survives, and v(w) refers to the utility of wealth if a person dies” (Kniesner wt al., 2012). The model is designed under the assumption that v and u are differential.

WTP approach suits the case on road safety. If the road improvement is meant to cater for 1000 travelers, there is an investment that will be required to accomplish the project. It is stated that on an average year, two individuals die on this road. The project is expected to reduce the number of fatalities from 2 to 1. Each member traveler should be willing to pay a certain amount of money either through taxation to benefit from the reduction in mortality by the road. Therefore, the corresponding VSL will require multiplication of the amount contributed by each traveler by the total number of travelers (1000) over 1 (the number statistical lives saved) (Doucouliagos et al., 2012). The answer from the computation will be the value of a statistical life. This calculation will vary depending on the state of the project. In the example given, if the road improvement is accomplished, one person from a group of similar individuals will die. Therefore, if the identity of the person who will die is not known, then the VSL model will be applicable to determine the value of life. However, if the individual’s identity is known, the person might require infinite compensation for loss of life.

VSL measurement has various examples, including speed limits. The speed limit can be changed by the federal government to foster road safety in highways. Speed Limits for certain highways might be higher than the standard national maximum speed limit. Such difference only considers the value of the time saved and not the incremental fatality created by the increased speed limit (Doucouliagos, Stanley & Giles, 2012). In such an instance, the decision makers (state governments) projected value of statistical life is misinformed of the relevant risks involved.

In conclusion, the value of life relates to decision making in the transportation sector. The decision regarding various road safety issues requires collective decision making where expert opinion on VSL is considered. In the transportation sector, there are two primary factors involved, reduced travel time and value of life (fatality risks). Speed limit regulations infer from the two elements. However, it is wrong for decision-makers in the transport sector to prefer time-saving over the value of life. There are cases where decision-makers set higher speed limits in certain roads than the standard limit set. In such cases, the decision makers have misguided preferences. Therefore, the participants in such decision making in the transport sector must be well informed of the VSL estimates.

References

Andersson, H., & Treich, N. (2011). 17 The value of a statistical life. A Handbook of Transport Economics, 396.

Doucouliagos, C., Stanley, T. D., & Giles, M. (2012). Are estimates of the value of a statistical life exaggerated? Journal of Health Economics, 31(1), 197-206.

Kniesner, T. J., Viscusi, W. K., Woock, C., & Ziliak, J. P. (2012). The value of a statistical life: evidence from panel data. Review of Economics and Statistics, 94(1), 74-87.