Using Mandated Speed Limits to Measure the Value of a Statistical Life

Posted: 26 Jan 2004

See all articles by Orley Ashenfelter

Orley Ashenfelter

Princeton University - Industrial Relations Section; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Michael Greenstone

University of Chicago - Department of Economics; Becker Friedman Institute for Economics; National Bureau of Economic Research (NBER)

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Abstract

In 1987 the federal government permitted states to raise the speed limit on their rural interstate roads, but not on their urban interstate roads, from 55 mph to 65 mph. Since the states that adopted the higher speed limit must have valued the travel hours they saved more than the fatalities incurred, this institutional change provides an opportunity to estimate an upper bound on the public's willingness to trade off wealth for a change in the probability of death. Our estimates indicate that the adoption of the 65-mph limit increased speeds by approximately 4 percent, or 2.5 mph, and fatality rates by roughly 35 percent. Together, the estimates suggest that about 125,000 hours were saved per lost life. When the time saved is valued at the average hourly wage, the estimates imply that adopting states were willing to accept risks that resulted in a savings of $1.54 million (1997 dollars) per fatality, with a sampling error roughly one-third this value. We set out a simple model of states' decisions to adopt the 65-mph limit that turns on whether their savings exceed their value of a statistical life. The empirical implementation of this model supports the claim that $1.54 million is an upper bound, but it provides imprecise estimates of the value of a statistical life.

Suggested Citation

Ashenfelter, Orley C. and Greenstone, Michael, Using Mandated Speed Limits to Measure the Value of a Statistical Life. Journal of Political Economy, Vol. 112, No. 1, Pt. 2, pp. S226-S267, February 2004. Available at SSRN: https://ssrn.com/abstract=489696

Orley C. Ashenfelter

Princeton University - Industrial Relations Section ( email )

Princeton, NJ 08544-2098
United States
609-258-4040 (Phone)
609-258-2907 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Michael Greenstone (Contact Author)

University of Chicago - Department of Economics

1126 East 59th Street
Chicago, IL 60637
United States

Becker Friedman Institute for Economics ( email )

Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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