Extending the Domain of the Value of a Statistical Life

Abstract

The value of a statistical life (VSL) establishes the money-risk tradeoff that U.S. government agencies have used for four decades to monetize the mortality reduction benefits of proposed regulations. This article advocates the adoption of the VSL more generally both for policy evaluation purposes and for setting the magnitude of regulatory sanctions involving fatalities. Agencies currently employ the inconsistent practice of using the VSL to set the stringency of regulations, while at the same time reverting to very low monetary values of sanctions for violations that result in fatalities. Reform of penalty levels to reflect the VSL will require increasing the current statutory limits on regulatory penalties. Revamping the penalty structure also will incentivize private companies to incorporate the VSL in their corporate risk analyses. Government agencies, including those concerned with national defense, similarly could profit from greater expansion of the use of the VSL in policy decisions.

Keywords: value of a statistical life, benefit-cost analysis, mortality, risk, regulatory penalties

JEL Classification: H43, J17, K23, K32, Q5