Value of a Statistical Life Under Large Mortality Risk Change: Theory and an Application to COVID-19

28 Pages Posted: 13 May 2020

See all articles by Diego S. Cardoso

Diego S. Cardoso

Cornell University, Dyson School of Applied Economics and Management

Ricardo Dahis

Northwestern University

Date Written: May 12, 2020

Abstract

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

Suggested Citation

Cardoso, Diego S. and Dahis, Ricardo, Value of a Statistical Life Under Large Mortality Risk Change: Theory and an Application to COVID-19 (May 12, 2020). Available at SSRN: https://ssrn.com/abstract=3599529 or http://dx.doi.org/10.2139/ssrn.3599529

Diego S. Cardoso (Contact Author)

Cornell University, Dyson School of Applied Economics and Management ( email )

442 Warren Hall
Ithaca, NY 14853
United States

HOME PAGE: http://www.diegoscardoso.com

Ricardo Dahis

Northwestern University ( email )

2211 Campus Drive
Office 3386
Evanston, IL 60208
United States

HOME PAGE: http://www.ricardodahis.com

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