Friday, March 27, 2020

Can we (and should be) put a value on people's life?

As Donald Trump proposes, in direct contravention of the advice of his health advisors, that American workers should go back to their jobs because the economy is suffering, calculations and models of the value of life come into play.
It's a moral grey area that economists hate to get involved with, but there is in fact something called the "value of statistical life" (VSL), also sometimes referred to as the "value of preventing a fatality" (VPF) or the " implied cost of averting a fatality" (ICAF). While you might think or believe that a human life is priceless and impossible to pin a financial value on, there are some economic, insurance and political decisions where such a price is used, at least in a theoretical way.
Note that this is not the value attributed to a particular individual; it is a statistical tool based on very generalized considerations. The simplest way to think of it is: how much would a person in a population or sample (of, say, 100,000 or 1 million) be willing to pay so that they could expect one fewer death in that population? That amount times the population size is then the value that can be put on a statistical life. There are also various other ways in which the amount can be estimated, such as the present calue of a person's earning potential, but the price people are willing to pay to save a life is the classic model.
It turns out that this comes out to around $9-$10 million in a rich Western country like America, and comparatively less in poorer and less "free" countries. There is also a "senior death discount" as people tend to value an older person's life lower than a younger one's.
Now, I'm sure that Mr. Trump is not using these kinds of models as a guide when he opens his mouth or his Twitter account - he is just not that analytical or logical. But it's interesting that there even exists an economic concept of the value of human life.

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