Value of a Statistical Life Under Large Mortality Risk Change: Theory and an Application to COVID-19
28 Pages Posted: 13 May 2020
Date Written: May 12, 2020
Benefit analyses of mortality reduction policies typically use multiples of the value of a statistical life (VSL). This approach approximates risk premia for small changes in mortality, but inaccurately estimates premia for large risk changes because it implies increasing marginal utility and a risk-loving attitude. We propose a simple method to calculate the benefit of large mortality reductions adjusting for risk aversion. We apply this method to calculate the benefits of social distancing and other mitigation strategies to combat COVID-19 in the US and 42 other countries. Our findings show that the traditional approach may underestimate the benefits of social distancing in the US by a factor of 4, and by a factor of 2, on average, for other countries.
Keywords: Value of a Statistical Life, VSL, Cost-Benefit Analysis, COVID-19, Mortality Risk, Risk Aversion
JEL Classification: D12, D61, D78, D81, H12, I15
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