No One Values Your Life More Than the Federal Government

By Dave Merrill

When a federal agency wants to implement a new regulation, it often needs to answer one basic question first: Do the benefits outweigh the costs? One way of calculating how beneficial a regulation might be is to measure how many deaths it would prevent, and what each life saved is worth.

Some federal agencies have decided that your life is exceedingly valuable. While the average U.S. household has a net worth of less than $100,000, the Environmental Protection Agency pegs the value of one life at about $10 million, one of the highest among federal agencies.

Life Measured in Dollars

EPA’s value of statistical life, 2016

$10M

Average lifetime earnings for college graduates,

2011

$2.4M

Median wrongful death jury award,

2009-2013

$2.2M

Median 9-11

settlement

compensation,

2003

$1.7M

Average life-insurance policy face value, 2015

$160,000

Average net worth of U.S. household, 2013

$80,039

EPA’s value of statistical life, 2016

$10M

Average lifetime earnings for college graduates,

2011

$2.4M

Median wrongful death jury award,

2009-2013

$2.2M

Median 9-11

settlement

compensation,

2003

$1.7M

Average life-insurance policy face value, 2015

$160,000

Average net worth of U.S. household, 2013

$80,039

Sources: Bloomberg research; Census Bureau; American Council of Life Insurers; What is Life Worth?, Kenneth R. Feinberg; North Carolina state case-study, 2009-2013, Campbell Law Review; Sept. 2015 Regulatory Impact Analysis, VSL accounts for income growth to 2024, EPA

Not every regulation depends on a value of statistical life, or VSL, to calculate its benefits. And while a proposed rule is not required to pass a cost-benefit analysis, it has a much better chance of going into effect if it does. Typically, VSLs are cited in no more than a dozen rules in a given year. But these “major rules” by definition have a significant economic impact.

When the VSL is used, it has proven to be a valuable benchmark in offsetting anticipated costs of a regulation. And over time, as wages and the public’s willingness to pay for safety measures have grown, agencies have dramatically increased what they think a life is worth.

Agencies Agree on One Thing: The Value of Life is Going Up

Adjusted for inflation, the VSL used by major U.S. regulatory agencies has risen dramatically.

Department of Agriculture

Food and Drug Administration/Health and Human Services

Environmental Protection Agency

$10M

$10M

$9.5M

$8.9M

8

6

4

$3.6M

$3.7M

$2.3M

2

0

1994

2016

1996

2017

1985

2016

Department of Agriculture

$8.9M

$3.6M

1994

2016

Food and Drug Administration/Health and Human Services

$9.5M

$3.7M

1996

2017

Environmental Protection Agency

$10M

$2.3M

1985

2016

Note: VSL shown in constant 2016 dollars. Where more than one VSL was used in a single year the median or most common value used is shown, except in 2006 where the an EPA average of 7.5 and 9.10 is shown.
Sources: Handbook of the Economics of Risk and Uncertainty, U.S. agencies

While agencies calculate their VSL based on scientific studies (the EPA consults 26 that recommend VSLs ranging from $1 million to $24.5 million), the math can be subject to interpretation.

The Trump administration has rolled back dozens of regulations put in place by President Barack Obama, citing cost projections it says were too low or benefits that were inflated.

Last week, EPA Administrator Scott Pruitt began the process of repealing the Clean Power Plan, a regulation that placed limits on greenhouse gas emissions from power plants. He disputed, in part, $55 billion to $93 billion in estimated health and live-saving benefits the agency had calculated under Obama as justification for the rule. And when the Trump administration ran its own math, it said the regulation would cost as much as $33 billion, compared to $8 billion calculated under the Obama administration.

It’s not just political interpretation that can alter the fate of a regulation. As VSLs have increased, once marginally beneficial safety measures can suddenly yield benefits far in excess of costs—meaning proposed regulations left for dead can have new life.

In 2007, the Department of Transportation was petitioned to consider a rule that would force automakers to install rear seat belt reminder systems in every car. The agency estimates the rule will save at least 44 lives each year and cost the auto industry up to $325 million annually. Considering the Department of Transportation’s inflation-adjusted VSL of $6.4 million in 2008, the regulation’s high-end cost estimate at the time of the petition exceeded low-end benefits.

The agency is still considering the rule. But now, its VSL has ballooned to $9.6 million. So assuming similar estimates to lives saved and costs to automakers, the rule’s benefits now far exceed their costs.

Benefiting From a Higher VSL

Using a $9.6 million value of statistical life, the estimated benefits of a proposed seat belt reminder system outweigh the $324.6 million high-end costs that would be imposed on car manufacturers.

$9.6M x 44 lives = $422.4M

 

2016 value of

statistical life

benefit

$324.6M

$10M

high-end

cost

8

$6.4M x 44 lives = $281.6M

2008 value of

statistical life

benefit

6

4

Department of Transportation’s

value of statistical life (VSL),

in constant 2016 dollars

2

$1.4M

0

1986

2016

$9.6M

2016 VSL

x 44 lives

$422.4M

benefit

$324.6M

high-end

cost

$10M

$6.4M

8

2008 VSL

x 44 lives

$281.6M

6

benefit

4

Department of Transportation’s

VSL in constant 2016 dollars

2

$1.4M

0

1986

2016

Note: A preliminary estimate anticipates at least 43.7 “equivalent lives saved”, a metric which includes nonfatal injuries based on the ratio of their costs to the value of a fatality.
Sources: Bloomberg analysis, Handbook of the Economics of Risk and Uncertainty, Department of Transportation

Are federal agency estimations of the value of life correct? Some say no.

In a study published in March, the libertarian think-tank Strata suggests that the VSL may be several millions of dollars too high. Study co-author Ryan Bosworth, professor of applied economics at Utah State, says people do a bad job calculating risk trade-offs.

“A couple will pay a premium for an infant car safety seat engineered with titanium, then drive with reckless abandon,” Bosworth said. “They’re not getting a lot of bang for their buck.”

Richard Thaler, winner of the 2017 Nobel Prize in Economics, similarly calculated a much lower estimate for human life. His wage studies, which are used by federal agencies as the most common way of estimating VSL, calculated how much more a worker would expect to be paid to assume a risk. The size of the worker pool at risk for one annual death multiplied by the amount of extra wages equals the VSL. In 1976, Thaler calculated the value of life at approximately $200,000 in 1967 dollars, or $1.5 million in today’s dollars.

The Science of Valuing Life

Scientists look at market forces to estimate a value of statistical life. Dangerous jobs are compensated based on a degree of risk. In this hypothetical example, if a miner faces an additional 1-in-5,000 chance of death compared to similar jobs, then the total extra wages paid equals the VSL.

5,000

miners at risk of

one death

x

$2,000

extra pay

per miner

=

$10M

Value of one

statistical life

5,000

miners at risk of one death

$2,000

x

extra pay per miner

$10M

Value of one statistical life

Sources: Bloomberg research

It’s doubtful agencies would be willing to make such drastic reductions to their VSLs. The Office of Management and Budget has generally endorsed agency VSLs as high as $10 million, though it hasn’t set a single government-wide VSL.

According to W. Kip Viscusi, professor of law and economics at Vanderbilt University, the EPA tried to adjust life values downward in 2003—igniting a political firestorm. In preparing an analysis for the Clear Skies Initiative, the agency applied a 37 percent lower life value for people 65 and older. The EPA quickly abandoned what became known as the “senior discount.”

Viscusi, whose research has become the foundation of modern agency VSLs, says that so far, the Trump administration hasn’t taken steps to lower the VSL.

“Lowering the VSL is not likely something that they will change. All hell broke loose when the EPA tried to lower it," said Viscusi. "It’s going nowhere but up.”