Panel Paper: Estimating An Altruism Adjusted Measure of the Value of a Statistical Life

Thursday, November 7, 2013 : 3:00 PM
3017 Monroe (Washington Marriott)

*Names in bold indicate Presenter

Mark Long, University of Washington
This paper empirically estimates an adjustment to the measure of the Value of a Statistical Life (VSL), used in benefit-cost analysis, to account for altruistic sentiments.

VSLs have been estimated in a variety of ways using both revealed- and stated-preference methods.  Prior work has examined how much individuals are paid to accept an increase in the probability of their deaths (e.g., the wage premium paid to high-rise tower construction workers), or how much individuals are willing to pay to reduce their chances of death (e.g., the premium drivers are willing to pay for safety devices). These methods for evaluating an individual’s value of his or her own life may potentially under- or overestimate the total social value of this individual to all concerned people once altruistic sentiments are included in the valuation.  If the individual making a market transaction (e.g., a worker taking on a risky job) doesn’t consider the “the pain and suffering of friends and relatives some of whom may be economically dependent” on the person deciding the market transaction, then standard benefit-cost analysis will undervalue the person’s life (Gramlich, 1990, p. 68).  However, theoretical work by Bergstrom (1982) shows that there is no need to adjust for altruism if that altruism is “pure” in the sense that individuals care about the utility of others rather than primarily care about others’ probability of survival.  Jones-Lee (1992) extends Bergstrom’s theoretical work and derives a VSL multiplier that is a function of individuals’ marginal rate of substitution of own wealth for others’ probability of survival and marginal rate of substitution of own wealth for others’ wealth.  If people are more “safety-focused” altruists, then traditional benefit-cost analysis has undervalued life as a result of ignoring altruism.  Conversely, if people are more “wealth-focused” altruists, then traditional benefit-cost analysis has overvalued life.  Jones-Lee noted that there was no existing data on the joint distribution of the components of his multiplier.

I show that Jones-Lee’s multiplier can be re-expressed using individuals’ marginal rate of substitution of own probability of survival (rather than wealth) for others’ probability of survival.  Relaxing Jones-Lee’s assumption that altruistic sentiments only occur within families, I show that the multiplier can depend on the distributional effects of the policy on individuals’ probabilities of death (e.g., policies that mostly affect older or younger individuals may have different altruism multipliers). 

To estimate these multipliers, I created a stated-preference survey (modeled after Krupnick et al., 2002), which was administered by Knowledge Networks to 500 survey respondents.  The survey investigates altruism as a function of the other person’s age and social proximity (family, friends, co-workers, acquaintances, U.S. and foreign strangers).  The survey respondents demonstrate considerably more safety than wealth altruism.  Consequently, the VSL altruism multiplier is substantially greater than one (1.57 for policies with uniform distributional effects), suggesting we are greatly undervaluing life in federal regulatory reviews.  Finally, I relate altruistic sentiments to various covariates, including distance from birth to current residence to understand how the multiplier may change with changes to population mobility.