Fair Innings: The Utilitarian and Prioritarian Value of Risk Reduction over a Whole Lifetime
45 Pages Posted: 9 Dec 2019
Date Written: November 16, 2019
The social value of risk reduction (SVRR) is the marginal social value of reducing an individual’s fatality risk, as measured by some social welfare function (SWF). This is the linchpin concept for applying social welfare functions to the domain of fatality risk regulation. This Article investigates SVRR, using a lifetime utility model in which individuals are differentiated by age, lifetime income profile, and lifetime risk profile. We consider both the utilitarian SWF and a “prioritarian” SWF, which applies a strictly increasing and concave transformation to individual utility.
We show that the prioritarian SVRR provides a rigorous basis in economic theory for the “fair innings” concept, proposed in the public health literature: as between an older individual and a similarly situated younger individual (one with the same income and risk profile), a risk reduction for the younger individual is accorded greater social weight even if the gains to expected lifetime utility are equal. We also systematically compare the SWF framework to benefit-cost analysis (BCA), which is currently the dominant policy-analysis method in governmental practice and applied economics. The value of statistical life (VSL) is BCA’s measure of the social value of reducing an individual’s risk. The comparative statics of prioritarian and utilitarian SVRRs with respect to age, income, and baseline survival probability are significantly different from VSL.
Finally, we illustrate how the SVRRs and VSL assign priority in risk reduction, via an empirical simulation based upon the U.S. population survival curve and income distribution. This empirical exercise shows that prioritarian SVRRs with a moderate degree of concavity in the transformation function conform to lay moral judgments regarding lifesaving policies: the young should take priority but income should make no difference.
Keywords: social welfare function (SWF), benefit-cost analysis (BCA), value of statistical life (VSL), fair innings, social value of risk reduction (SVRR), utilitarian, prioritarian, risk regulation
JEL Classification: D04, D61, D63, D81, I18, J17
Suggested Citation: Suggested Citation