Cost–Benefit Analysis and Incentives in Evaluation

Cost–Benefit Analysis and Incentives in Evaluation

The Structural Funds of the European Union

Edited by Massimo Florio

This book provides an authoritative contribution to applied cost–benefit analysis (CBA) and other evaluation methods in the context of the regional policy of the European Union. Through the use of Structural Funds and other financial and regulatory mechanisms, the EU will help to promote thousands of infrastructure projects in the next decade. CBA will be a key ingredient in the investment decision process and the authors provide important insights from their international experiences in project appraisal and evaluation and point to some valuable lessons to be learnt for the future.

Chapter 9: On the Definition and Estimation of the Value of a ‘Statistical Life’

Per-Olov Johansson

Subjects: economics and finance, public sector economics, valuation, environment, transport, valuation


9. On the definition and estimation of the value of a ‘statistical life’ Per-Olov Johansson INTRODUCTION In many cases, such as environmental pollution and new medical treatments we are interested in estimating the benefits and costs of measures reducing the risk of death. A quite natural way of formulating the problem is in terms of the benefits and costs of a measure expected to save one life. If the value of saving one (statistical) life exceeds the costs incurred, undertaking the measure would seem worthwhile. It should also be mentioned that nowadays many authors seem to prefer to speak of the value of preventing a fatality rather than the value of a statistical life. In this chapter, for most of the time I will stick to the old fashioned terminology. To give a further illustration of the concept and its meaning, let us consider a winding road where, on average, there are two fatal accidents per year. By investing €3 million to improve road quality, it is expected that one fatality can be avoided. If society is prepared to invest €3 million, it says that it values a saved life to at least €3 million. If society says no (because there are other and even more prioritized uses of our scarce resources), then it in fact says that a life is worth less than €3 million. Note here that we speak of an anonymous (or equivalently anonymous) life, we don’t know in advance if it is your...

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