A Cost–Benefit Approach
Chapter 34: Value of a Statistical Life Theory
The human capital approach is the most often used method to value a life in health care evaluations. But as we have just explained in the last chapter, it is not best CBA practice. Individual preferences are not being considered. If anything, it is the foregone output to the rest of society that is being recorded, not the value to the individual him or herself. In the value of a statistical life (VSL) approach, it is the preferences of individuals regarding the amount of money that is required to compensate them for putting up with reduced safety that is the relevant valuation. This fits in well with the WTP base of CBA as the individual is choosing to pay for something (usually a job) that has a lower risk of a fatality. THE VALUE OF A STATISTICAL LIFE APPROACH As first argued by Schelling (1968), the wrong question to ask in a CBA is: how much are you willing to accept to compensate you for losing your life? The most common response would be that there would be no finite amount that would adequately compensate. After all, if you are dead, what can one do with the money (other than give it to a friend or family member)? Rather, the question to ask is: how much are you willing to accept for a specified risk of losing your life? If the risk is 0.001 and you would accept $1000, then you are implicitly valuing your life at $1 million. That...
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